Problem 1: True or False

1. Reporting entity may capitalize borrowing costs if it is chooses to do so.

2. A qualifying asset is one which is ready for its intended use upon acquisition.

3. Depending on the circumstance, inventories can be qualifying assets.

4. According to PAS 23, the capitalization of borrowing costs shall be suspended during periods of temporary delay in the construction of a qualifying asset.

5. Heater Co. obtains a loan specifically to finance the construction of a qualifying asset. Heater Co. incurs P10 borrowing costs on the loan and earns P2 income from temporary investments of excess loan proceeds. The borrowing cost to be capitalized is P12.

Problem 2: Classroom Discussion

Core Principle

1. Which of the following may not be considered a " qualifying asset under PAS 23?

1. A power generation plant that normally takes two years to construct.
2. An expensive private jet that can be purchased from a local vendor.
3. A toll bridge that usually takes more than a year to build.
4. A ship that normally takes one to two years to complete. (Adapted)

Capitalization of borrowing costs

2. 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

1. a part of the historical cost of acquiring the asset to be written off over the estimated useful life of the asset.
2. interest expense in the construction period.
3. recorded as a deferred charge and amortized over the term of the borrowing.
4. 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.

3. Which of the following costs may not be eligible for capitalization as borrowing costs under PAS 23?

1. Interest on bonds issued to finance the construction of a qualifying asset
2. Amortization of discounts or premiums relating to borrowings that qualify for capitalization.
3. Imputed cost of equity.
4. 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)

4. Capitalization of borrowing costs

1. Shall be suspended during temporary periods of delay.
2. May be suspended only during extended periods of delays in which active development is delayed.
3. Should be suspended once capitalization never commences.
4. Shall be suspended only during extended periods of delays in which active development is delaye (Adapted)

Presentation

8. Which of the following is not a disclosure requirement under PAS 23?

1. Accounting policy adopted for borrowing costs
2. Amount of borrowing costs capitalized during the period.
3. Segregation of assets that are " qualifying assets from other assets on the balance sheet or as a disclosure in the footnotes to the financial statements.
4. Capitalization rate used to determine the amount of borrowing costs eligible for capitalization.