02-16-2010, 08:53 PM
Shoaib,
I could not understand if this post in fact is yours. I wish you should have given explanation as well.
IAS-17 and IAS-23 together do not allow what Ahmed is asking. If something is not allowed to be capitalized or deferred in the form of any asset, how you will not find it having any operational inference? I hope you must know that IAS-1 has eliminated the differences of "operating activities" and "non-operating activities" as well in the recent amendments. So, rest assured, now everything is operational that does not qualify for capitlaization.
I wonder how finance cost of leasing arrangement is a capitzalition activity. You acquire an asset on rent and the rent is supposed to be operational expense. What is wrong in it. Just for accounting purpose and to follow substance over form rule, if you are distorting such "rent" into "depreciation" and "finance charge", it will not make you to capitalize any of these two portions of such rental that is being paid for usage of asset.
I guess it is very easy to understand.
I believe you must know that IAS-17 does allow deferring of "Gains arising on Sale and Lease Back arrangements" but together with other explanations in IASs does not at all allow deferring of or capitalizing of the "Loss on Sale and Lease Back arrangement". People used to say that this is a financing arrangement so deferring of loss (or in your words capitalization thereof at least) should be allowed as well. But you know this is not what standards suggest.
We have to treat the things with various concepts given by IFRSs placing them together for making a conclusion. I would suggest Ahmed to study Framework of IFRSs. in my view it is vital to understand what elements we must always keep in view for basing a concept under IFRSs.
In his last post he was curious about why such finance cost cannot be capitalized. My response is easier; IFRSs do not allow it firstly; and secondly, the finance cost attributed to non-qualifying asset is periodic/operational cost and does not come under the ambit of a capitalization activity.
I would look forward to see what suggestions or sloution you have to suggest. If you know something different, please at least share with us so that something better can be concluded.
Regards,
KAMRAN.
I could not understand if this post in fact is yours. I wish you should have given explanation as well.
IAS-17 and IAS-23 together do not allow what Ahmed is asking. If something is not allowed to be capitalized or deferred in the form of any asset, how you will not find it having any operational inference? I hope you must know that IAS-1 has eliminated the differences of "operating activities" and "non-operating activities" as well in the recent amendments. So, rest assured, now everything is operational that does not qualify for capitlaization.
I wonder how finance cost of leasing arrangement is a capitzalition activity. You acquire an asset on rent and the rent is supposed to be operational expense. What is wrong in it. Just for accounting purpose and to follow substance over form rule, if you are distorting such "rent" into "depreciation" and "finance charge", it will not make you to capitalize any of these two portions of such rental that is being paid for usage of asset.
I guess it is very easy to understand.
I believe you must know that IAS-17 does allow deferring of "Gains arising on Sale and Lease Back arrangements" but together with other explanations in IASs does not at all allow deferring of or capitalizing of the "Loss on Sale and Lease Back arrangement". People used to say that this is a financing arrangement so deferring of loss (or in your words capitalization thereof at least) should be allowed as well. But you know this is not what standards suggest.
We have to treat the things with various concepts given by IFRSs placing them together for making a conclusion. I would suggest Ahmed to study Framework of IFRSs. in my view it is vital to understand what elements we must always keep in view for basing a concept under IFRSs.
In his last post he was curious about why such finance cost cannot be capitalized. My response is easier; IFRSs do not allow it firstly; and secondly, the finance cost attributed to non-qualifying asset is periodic/operational cost and does not come under the ambit of a capitalization activity.
I would look forward to see what suggestions or sloution you have to suggest. If you know something different, please at least share with us so that something better can be concluded.
Regards,
KAMRAN.
