IAS-23 Plz answer these 3 MCQs

Ice_Blue · 02-17-2006, 10:35 PM

Salam,

These MCQs relate to IAS-23

Q.1 On 1 January 2006 an entity spends Rs.100,000 from its own
funds(equity) on the construction of a qualifying asset and
active development of the asset starts.

On 1 March 2006 a specific loan is obtained for the
construction of the qualifying asset. On 1 April 2006 first
expenditure from the borrowed amount is made.

REQD The borrowing costs are to capitalized from

A. 1 March 2006 (date of specific borrowing)
B. 1 April 2006 (date of first expenditure from Borrowing)

----------------------------------------------------------
Q.2 An qualifying asset is under construction with funds from
General Borrowing. While the asset was under construction a
specific loan was obtained. Assuming the funds from the
General Fund were not returned to General Fun, when will the
capitalization of the specific borrowing cost commence

A. From the date the specific borrowing is obtained ( active
development of the asset is underway at that time)

B. From the date the first expenditure is made from the
specific borrowing.

-------------------------------------------------------------
Q.3 Is amortization of discount suspended during interruption
period ?

A. Yes
B. No

A prompt reply would be appreciated. I am taking this Spring
attempt for Module C.

Regards,
Kamran Manzoor

Ice_Blue · 02-19-2006, 01:27 AM

well nobody seems to know the answer

Ice Blue

salloo70 · 02-22-2006, 06:12 PM

well, the rule goes like the capitalization starts when

1. its interest period start (means ineterest period is going on)and
2. the quilifying asset started to be manufactured.

so it semms that borrowing cost eligible for capitalization is from march onwards bc assets is being manufactured and ffrom march onwards borrowing cost started to incur

PLz correctme if i m making an error

smurfyazhar · 02-22-2006, 06:32 PM

answer to the first Q. is option B. 1 April 2006 (date of first expenditure from Borrowing)

Cheers

Ice_Blue · 02-22-2006, 09:16 PM

the correct answer is option A for Q.1

Ice Blue

Ice_Blue · 02-24-2006, 02:45 AM

i am sorry the correct answer for Q1 is B.

Q2 B and Q3 A

Ice Blue

Ali Akbar · 03-02-2006, 01:33 PM

<blockquote id="quote">quote<hr height="1" noshade id="quote">Originally posted by Ice_Blue
 Salam,

These MCQs relate to IAS-23

Q.1 On 1 January 2006 an entity spends Rs.100,000 from its own
funds(equity) on the construction of a qualifying asset and
active development of the asset starts.

On 1 March 2006 a specific loan is obtained for the
construction of the qualifying asset. On 1 April 2006 first
expenditure from the borrowed amount is made.

REQD The borrowing costs are to capitalized from

A. 1 March 2006 (date of specific borrowing)
B. 1 April 2006 (date of first expenditure from Borrowing)

----------------------------------------------------------
Q.2 An qualifying asset is under construction with funds from
General Borrowing. While the asset was under construction a
specific loan was obtained. Assuming the funds from the
General Fund were not returned to General Fun, when will the
capitalization of the specific borrowing cost commence

A. From the date the specific borrowing is obtained ( active
development of the asset is underway at that time)

B. From the date the first expenditure is made from the
specific borrowing.

-------------------------------------------------------------
Q.3 Is amortization of discount suspended during interruption
period ?

A. Yes
B. No

A prompt reply would be appreciated. I am taking this Spring
attempt for Module C.

Regards,
Kamran Manzoor
<hr height="1" noshade id="quote"></blockquote id="quote">

Hi bhayyoo...

Refer to para 20 of IAS 23 where all of the three conditions should be met before capitalizing borrwoing cost. vis-a-vis

i) expenditure for the asset are being incurred;
ii)borrowing costs are being incurred; AND
iii)activities that are necessary to prepare the asset for its intended use or sale are in progress.

The word AND is used, it means that all of the three conditions should be met.

Answer to ur questions #1 is 1 April 2006.

ICAPians, the unparalleled..

Ali Akbar · 03-02-2006, 01:56 PM

<blockquote id="quote">quote<hr height="1" noshade id="quote">Originally posted by Ice_Blue
 Salam,

These MCQs relate to IAS-23

Q.1 On 1 January 2006 an entity spends Rs.100,000 from its own
funds(equity) on the construction of a qualifying asset and
active development of the asset starts.

On 1 March 2006 a specific loan is obtained for the
construction of the qualifying asset. On 1 April 2006 first
expenditure from the borrowed amount is made.

REQD The borrowing costs are to capitalized from

A. 1 March 2006 (date of specific borrowing)
B. 1 April 2006 (date of first expenditure from Borrowing)

----------------------------------------------------------
Q.2 An qualifying asset is under construction with funds from
General Borrowing. While the asset was under construction a
specific loan was obtained. Assuming the funds from the
General Fund were not returned to General Fun, when will the
capitalization of the specific borrowing cost commence

A. From the date the specific borrowing is obtained ( active
development of the asset is underway at that time)

B. From the date the first expenditure is made from the
specific borrowing.

-------------------------------------------------------------
Q.3 Is amortization of discount suspended during interruption
period ?

A. Yes
B. No

A prompt reply would be appreciated. I am taking this Spring
attempt for Module C.

Regards,
Kamran Manzoor
<hr height="1" noshade id="quote"></blockquote id="quote">

Following are the replies to ur questions number 2 & 3.

Again refer to para 20 of IAS 23 where all of the three conditions should be met, option B is correct answer, however, general borrwoing cost should be capitalized calculated with reference to wieghted average rate.

Question 3 is not quite clear to me, to the extent I understand, if the the iterruption is not due to normal circumstances of the nature of asset, then the capitalization of borrowing cost should be stopped. refer to para 24 of IAS 23.

ICAPians, the unparalleled..