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    BORROWING COSTS - THEORIES pt.3

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    Kie Magracia Bustillos
    The document discusses the rules and conditions for capitalizing borrowing costs as part of the cost of a qualifying asset. It defines a qualifying asset and outlines the conditions that must be met, such as it being probable that future economic benefits will result from the asset and costs can be measured reliably. It also discusses how borrowing costs are calculated depending on whether the asset is financed by specific or general borrowing, when capitalization begins and ends, and disclosure requirements.

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    BORROWING COSTS - THEORIES pt.3

    Uploaded by

    Kie Magracia Bustillos
    45 views2 pages
    The document discusses the rules and conditions for capitalizing borrowing costs as part of the cost of a qualifying asset. It defines a qualifying asset and outlines the conditions that must be met, such as it being probable that future economic benefits will result from the asset and costs can be measured reliably. It also discusses how borrowing costs are calculated depending on whether the asset is financed by specific or general borrowing, when capitalization begins and ends, and disclosure requirements.

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    BORROWING-COSTS_THEORIES-pt.3

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    The document discusses the rules and conditions for capitalizing borrowing costs as part of the cost of a qualifying asset. It defines a qualifying asset and outlines the conditions that must be met, such as it being probable that future economic benefits will result from the asset and costs can be measured reliably. It also discusses how borrowing costs are calculated depending on whether the asset is financed by specific or general borrowing, when capitalization begins and ends, and disclosure requirements.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    45 views2 pages

    BORROWING COSTS - THEORIES pt.3

    Uploaded by

    Kie Magracia Bustillos
    The document discusses the rules and conditions for capitalizing borrowing costs as part of the cost of a qualifying asset. It defines a qualifying asset and outlines the conditions that must be met, such as it being probable that future economic benefits will result from the asset and costs can be measured reliably. It also discusses how borrowing costs are calculated depending on whether the asset is financed by specific or general borrowing, when capitalization begins and ends, and disclosure requirements.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    of 2

    BORROWING COSTS

    Thursday, September 29, 2022 1:22 PM

    1. Borrowing costs can be capitalized as cost of the asset when:


    D. The asset is a qualifying asset and it is probable that the borrowing costs will result in future
    economic benefits to the entity and the costs can be measured reliably.

    2. If the qualifying asset is financed by specific borrowing, the capitalizable borrowing cost is equal to
    A. Zero
    B. Actual borrowing cost incurred
    C. Actual borrowing cost incurred up to completion of asset
    D. Actual borrowing cost incurred up to completion of asset minus any investment income
    from the temporary investment of the borrowing

    3. Which of the following assets could be treated as qualifying asset for the purpose of capitalizing
    borrowing costs?
    a. Investment property
    b. Financial asset at fair value
    c. Inventory that is manufactured in large quantity on a repetitive basis and takes a
    substantial period of time to get ready for use or sale
    d. Biological asset

    4. Which of the following is not a condition that must be satisfied before interest capitalization can
    begin on a qualifying asset?
    a. The interest rate is equal to the bank prime rate.
    b. Interest is being incurred.
    c. Expenditures for the asset have been made.
    d. Activities necessary to get the asset ready for the intended use are in progress.

    5. If the qualifying asset is financed by general borrowing, the capitalizable borrowing cost is equal
    to?
    a. Average expenditures on the asset multiplied by a capitalization rate or actual borrowing
    cost incurred, whichever is lower
    b. Actual borrowing cost incurred
    c. Total expenditures on the asset multiplied by a capitalization rate
    d. Average expenditures on the asset multiplied by a capitalization rate or actual borrowing
    cost incurred, whichever is higher

    6. Capitalization of borrowing cost


    a. Shall be suspended during temporary period of delay.
    b. May be suspended only during extended period of delay in which active development is
    delayed.
    c. Shall never be suspended.
    d. Shall be suspended only during extended period of delay in which active development is
    delayed.

    7. The period of time during which interest must be capitalized ends when
    a. The asset is abandoned, sold or fully depreciated.
    b. The activities that are necessary to get the asset ready for the intended use have begun.
    c. The asset is substantially complete and ready for the intended use.
    d. No further interest is being incurred.
    8. Which is not a disclosure requirement in relation to borrowing cost?
    a. Amount of borrowing cost capitalized during the period
    b. Capitalization rate used to determine the amount of borrowing cost eligible for
    capitalization
    c. Segregation of qualifying asset from other assets
    d. Accounting policy adopted for borrowing cost

    9. Which is not be considered a qualifying asset?


    a. An expensive jet that can be purchased from a vendor
    b. A power generation plant that takes two years to construct
    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
    10. Assets that qualify for interest capitalization include:
    a. Assets under construction for an entity's own use.
    b. Assets that are ready for the intended use.
    c. Assets that are not currently being used because of excess capacity.
    d. All of these assets qualify for interest capitalization

    From <https://quizlet.com/517037039/cfas-chapter-17-flash-cards/>

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