Group Members

• M Kamran Shabbir 4458-FMS/MBA/S10
• Hamid Ijaz 4536-FMS/MBA/S10

Borrowing Costs (IAS-23)
What is (IAS-23)? Borrowing cost prescribes the criteria for determining whether borrowing cost can be capitalized as a part of cost of acquiring or producing a qualifying asset

Introduction To (Borrowing Cost)
• Borrowing cost are the interest and other costs that are incurred by an entity in connection with borrowing of funds.

Examples Of Borrowing Cost
• Bank Over Draft
• Amortization of discount

• Financial Charge in respect of financial lease recognized in accordance with IAS-17 lease • Exchange differences arises from foreign currency borrowing to the extent that may regarded as an adjustment to interest cost.

Introduction to Qualifying Asset
• Qualifying asset is an asset that substantially takes a period of time to get ready for use or sale.

Examples of Qualifying Assets
• Inventories that require substantial period of time for manufacturing
• Manufacturing Plant • Power generation facility

• Intangible Assets
• Investment in Properties

• General Borrowing (Capitalization Rate) • Specific Borrowing

Calculation’s
• General Borrowing (Capitalization Rate) =[Total Interest/Weight
of Total loan outstanding]×100 • Specific Borrowing Interest Paid ××× (-)Interest Income ××× Borrowing Cost ×××

Borrowing Eligible For Capitalization
• Qualifying asset is an essential element for the capitalization of borrowing cost. • Borrowing and Funding organized Centrally

• Specifically borrowing to finance a single Qualified Asset
• Capitalized Borrowing cost is less than the borrowing cost incured

Suspension of Capitalization
• When active development is interrupted • Example; capitalization would be suspended during an interruption to the construction of a bridge during very high water levels, which are common in the area where construction is taking place. • However, capitalization of borrowing costs should not be suspended when there is only a tempo-rary delay that is caused by certain expected and anticipated reasons, such as while an asset is getting ready for its intended use.

CESSATION OF CAPITALIZATION
• When activity is necessary for making an asset or stopped
• Asset is ready for use or sale • Activities like decoration and routine administrative work do not come under the necessary activity for making an asset so asset will be considered complete • Capitalization Ceases only on those parts which are complete and ready for use and the parts which are un complete borrowing cost kept on capitalizing on those parts

Disclosure
• Accounting policy for the recognition of borrowing cost

• The amount of borrowing cost to be capitalized

• Capitalization rate all above mentioned themes are to be disclosed in the disclosure of firm and entity

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