INTERMEDIATE ACCOUNTING 1 FAR CHAPTER KEY TERMS Borrowing Cost Qualifying Asset 2 7 BORROWING COSTS NOTES / DRAWINGS - Interest and other costs that an entity incurs from borrowing of funds It includes: 1. Interest expense (effective interest method) 2. Finance charge 3. Exchange different (foreign currency borrowing) - An asset that takes substantial period of time to get ready for use It includes: 1. Manufacturing plant 2. Power generation facility 3. Intangible asset 4. Investment property It excludes: 1. Assets measured at FAIR VALUE (biological assets) 2. Inventory produced in LARGE QUANTITY on a REPETITIVE BASIS (whisky) 3. Assets that are READY for their intended use or sale WHEN ACQUIRED ACCOUNTING FOR BORROWING COSTS - CAPITALIZED as costs of the asset - all other borrowing costs shall be expensed as incurred Asset financed by specific borrowing Capitalizable borrowing costs = actual borrowing costs – investment income Asset financed by general borrowing Capitalizable borrowing costs = ave. carrying amount x ave. interest rate Average interest rate = total annual borrowing costs/ total general borrowing Outstanding Investment income IS NOT DEDUCTED capitalizable borrowing costs SHALL NOT EXCEED the actual borrowing costs in case of Excess capitalizable borrowing costs = interest expense Actual borrowing costs xxx Capitalizable borrowing costs (xxx) Interest Expense xxx Asset financed by both specific & general borrowing Average carrying amount xxx Specific Borrowing (xxx) General Borrowing xxx SPECIFIC BORROWING for asset used for general purposes - treated as general borrowing INTERMEDIATE ACCOUNTING 1 FAR Read further IA 1 Valix pg. 693-694