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Some queries---FA 2

 
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Some queries---FA 2
insaan
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#12
08-15-2006, 07:34 AM
OH i feel i was unable to convey my point here
now i try to elaborate it...

Question was
ABC Ltd is constructng a qualifying asset and its sources of finance are as under

ABC ltd borrows specifically for this asset on 1 Jan 2005 an amount = Rs100 @ 8%
ABC ltd also has general borrowing fund of Rs 1000 on 1 Jan 2005
rate of capitalisation on such general boorowing = 10%

yr end is 31 dec 2005

the qualifying asset is planned to be commenced on 1Jan2005 but due to certain problems it couldn't be started before 1April 2005

details of exp are as under
1 April 2005 = Rs 50
1 May 2005 = Rs 50
1 JUne 2005 = Rs 100

REqcalculate amount of borrowing cost capitalised?

Solution
BC to be capitalized = 100*9/12*.08+100*7/12*.01


NOW HERE START THE ARGUMENTS/REASONS FOR MY SOLUTION

POINT NO 01
criteria for capitalization of borrowing cost is as under
IAS 23.20
The capitalisation of borrowing costs as part of the cost of a qualifying asset should commence when
(a) expenditures for the asset are being incurred;
(b) borrowing costs are being incurred; and
(c) activities that are necessary to prepare the asset for its intended use or sale are in progress.

thus as per this question B.C capitalization wud start from 1 ApRil2005 and not from 1 jan 2005...theek hai

so we have similar stands in this regards

POINT NO 02

IAS 23.15
To the extent that funds are borrowed specifically for the purpose of obtaining a qualifying asset, the amount of borrowing costs eligible for capitalisation on that asset should be determined as the <u><b>actual borrowing costs incurred on that borrowing during the period</b></u> less any investment income on the temporary investment of those borrowings

in our case
actual borowing cost incurred on the specific borrowing during the period = 100 * 0.08 * (12/12)= Rs8
Where borrowing cost of Rs2 i.e 100 * .08 * (3/12) relates to period before criteria for commencement of capitalisation is met,so it should be expensed out
whereas borrowing cost of Rs6 i.e 100 * .08 * (9/12) relates to period after criteria for commencement of capitalisation is met,so it should be capiatlised

POINT NO 03

IAS 23.17
To the extent that funds are borrowed generally and used for the purpose of obtaining a qualifying asset, the amount of borrowing costs eligible for capitalisation should be determined by <u>applying a capitalisation rate to the</u> <b>expenditures on that asset</b>


NOTE THE DIFFERENCE B/W THE 2 TREATMENTS
specific borrowingactual borrowing costs incurred on that borrowing during the period (being eligible for capitalisation)
general borrowingapplying a capitalisation rate to the expenditures on that asset




as far as treatment in case of capiatlisation of general borrowing is concerned the solution given by U was in accordance with IAS 23
BUT
as far as treatment in case of capiatlisation of specific borrowing is concerned the solution given by U wasn't in accordance with IAS 23

and now i m 99% sure about my solution ...so the 5% doubt which i had ;has vanished in the course of writing this reply

waiting for what U say

TC
and THX for the reply

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Messages In This Thread
Some queries---FA 2 - by insaan - 08-05-2006, 06:01 AM
[No subject] - by Abdur.Rehman - 08-12-2006, 07:09 AM
[No subject] - by insaan - 08-13-2006, 05:59 AM
[No subject] - by insaan - 08-13-2006, 07:56 AM
[No subject] - by Abdur.Rehman - 08-13-2006, 08:27 AM
[No subject] - by Abdur.Rehman - 08-13-2006, 08:30 AM
[No subject] - by insaan - 08-14-2006, 04:44 AM
[No subject] - by insaan - 08-14-2006, 04:47 AM
[No subject] - by Abdur.Rehman - 08-14-2006, 06:25 AM
[No subject] - by insaan - 08-14-2006, 08:04 AM
[No subject] - by Abdur.Rehman - 08-15-2006, 06:36 AM
[No subject] - by insaan - 08-15-2006, 07:34 AM
[No subject] - by Abdur.Rehman - 08-15-2006, 08:42 PM
[No subject] - by insaan - 08-16-2006, 04:18 AM
[No subject] - by Abdur.Rehman - 08-16-2006, 03:30 PM
[No subject] - by insaan - 08-17-2006, 05:02 AM
[No subject] - by Abdur.Rehman - 08-18-2006, 06:24 PM
[No subject] - by rememberence - 08-19-2006, 03:02 PM
[No subject] - by insaan - 08-21-2006, 04:52 AM
[No subject] - by Abdur.Rehman - 08-21-2006, 07:44 AM

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