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Borrowing Cost Answer Let's Check (ULO O)

The document discusses borrowing costs and how they relate to accounting. It provides definitions of borrowing costs and outlines which costs can be included. It also discusses the conditions for capitalizing borrowing costs and what constitutes a qualifying asset. The document quizzes the reader with true/false questions to check their understanding of the concepts around accounting for borrowing costs.

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15 views2 pages

Borrowing Cost Answer Let's Check (ULO O)

The document discusses borrowing costs and how they relate to accounting. It provides definitions of borrowing costs and outlines which costs can be included. It also discusses the conditions for capitalizing borrowing costs and what constitutes a qualifying asset. The document quizzes the reader with true/false questions to check their understanding of the concepts around accounting for borrowing costs.

Uploaded by

yes yesno
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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Borrowing Cost

Answer Let’s Check

(ULO o)

Activity 1. Now that you know most of the essential terms in the study of accounting for

borrowing costs, let us try to check your understanding of the topic.

True or False: Write true if the statement is correct and if the statement is wrong, write false.

1. Borrowing costs are incurred in connection with borrowing of funds and include all of

the following:

a. Interest expense calculated using the effective interest method.

b. Finance charge in respect of finance lease.

c. Exchange difference arising from foreign currency borrowing to the extent that the exchange

difference is regarded as an adjustment to interest costs.

d. All of these are included in borrowing costs.

True 2. If the qualifying asset is financed by specific borrowing, the capitalizable borrowing

cost is equal to actual borrowing cost incurred up to completion of asset minus any investment income

from the temporary investment of the borrowing.

_False 3. If the qualifying asset is financed by general borrowing, the capitalizable borrowing

cost is equal to average expenditures on the asset multiplied by a capitalization rate or actual
borrowing cost incurred, whichever is higher.

_False 4. Inventory that is manufactured or produced in large quantity on a repetitive basis and

takes a substantial period of time to get ready for use or sale could be treated as qualifying asset for

the purpose of capitalizing borrowing costs.

False 5. Borrowing costs can be capitalized when the asset is a qualifying asset and it is probable

that the borrowing costs will result in future economic benefit to the entity but the costs cannot be

measured reliably.

_False 6. All of the following should be considered a qualifying asset:

a. A power generation plant that normally takes two years to construct.

b. An expensive jet that can be purchased from a vendor.

c. A toll bridge that usually takes more than a year to build.

d. A ship that normally takes one to two years to complete.

False 7. Cessation of capitalisation is provided for in IAS 23 par. 20

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