QUESTION 5

IAS 23 Borrowing Costs regulates the extent to which entities are allowed to capitalize borrowing costs incurred on money borrowed to finance the acquisition of certain assets.

Required:

State two (2) conditions to be met for:

Capitalization of borrowing costs to commence. (2 marks)

Capitalization of borrowing costs to cease. (2 marks)

The definition of a liability forms an important element of IABSs Framework for Preparation and Presentation of Financial Statements which in turn forms the basis of IAS 37 Provisions, contingent liabilities and contingent assets.

Required:

Distinguish between a liability and a provision. (2 marks)

Describe the circumstances under which provisions should be recognized. (2 marks)

(Total: 8 marks