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PAS 23 Borrowing Costs
QUIZ:
1. On January 1, 20x1, Entity A obtained a 10%, ₱5,000,000 loan, specifically to finance the
construction of a building. The proceeds of the loan were temporarily invested and earned
interest income of ₱180,000. The construction was completed on December 31, 20x1 for total
construction costs of ₱7,000,000. How much is the cost of the building on initial recognition?
a. 7,320,000
c. 7,500,000
b. 7,000,000
d. 6,680,000
2. Which of the following may not be considered a “qualifying asset” under PAS 23?
a. A power generation plant that normally takes two years to construct.
b. An expensive private jet that can be purchased from a local vendor.
c. A toll bridge that usually takes more than a year to build.
d. A ship that normally takes one to two years to complete.
(Adapted)
3. An asset is being constructed for an enterprise's own use. The asset has been financed with a
specific new borrowing. The interest cost incurred during the construction period as a result of
expenditures for the asset is
a. a part of the historical cost of acquiring the asset to be written off over the estimated useful
life of the asset.
b. interest expense in the construction period.
c. recorded as a deferred charge and amortized over the term of the borrowing.
d. a part of the historical cost of acquiring the asset to be written off over the term of the
borrowing used to finance the construction of the asset.
(Adapted)
4. Which of the following costs may not be eligible for capitalization as borrowing costs under PAS
23?
a. Interest on bonds issued to finance the construction of a qualifying asset.
b. Amortization of discounts or premiums relating to borrowings that qualify for capitalization.
c. Imputed cost of equity.
d. Exchange differences arising from foreign currency borrowings to the extent they are
regarded as an adjustment to interest costs pertaining to a qualifying asset.
(Adapted)
5. Capitalization of borrowing costs
a. Shall be suspended during temporary periods of delay.
b. May be suspended only during extended periods of delays in which active development is
delayed.
c. Should never be suspended once capitalization commences.
d. Shall be suspended only during extended periods of delays in which active development is
delayed.
(Adapted)
“The roots of education are bitter, but the fruit is sweet.” – Aristotle
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SOLUTION:
1. A (5M x 10%) – 180,000 = 320,000 capitalizable borrowing costs + 7,000,000 construction costs =
7,320,000