QUESTIION 4 lllustration 4 Marine Transport Limited ordered 3 ships

IAS 23 Borrowing Costs-(Practicals Included)

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LIST OF THE PRESENT APPLICABLE AND EFFECTIVE ACCOUNTING STANDARDS:
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Highlights of this IFRS course:
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IAS 23 Borrowing Costs- THEORY ( SURFACE )

What is Borrowing costs?
What are the objective and scope for IAS 23?
At what Rate should the Borrowing Cost be Capiltalised?
When should the Capitalisation of Borrowing cost cease and continue?
When should the Capitalisation of Borrowing cost be suspended?
What are the disclosure associated with the Borrowing cost?
How does the entity recognize borrowing costs that compensate for inflation during the same period in accordance with paragraph 21 of the standard?
What do you understand by a Qualifying Asset ?
When the borrowed funds becomes eligible for capitalisation ?
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IAS 23 Borrowing Costs- THEORY ( DEPTH )

What is the definition of borrowing costs and how should they be accounted for in financial statements?
Describe the accounting treatment for the Borrowing costs?
What is the purpose of IAS 23?
How should entities determine which borrowing costs are eligible for capitalization under IAS 23?
How should entities capitalize borrowing costs under IAS 23?
How should entities recognize borrowing costs as an expense in their financial statements under IAS 23?
How does IAS 23 address the treatment of borrowing costs that are directly attributable to the acquisition, construction, or production of a qualifying asset?
How does IAS 23 address the treatment of borrowing costs that are not directly attributable to the acquisition, construction, or production of a qualifying asset?
What are the key considerations for auditors in relation to borrowing costs under IAS 23?
How does IAS 23 address the issue of discontinuing capitalization of borrowing costs?
How does IAS 23 address the issue of changing the method of capitalization of borrowing costs?
How should an entity determine the borrowing costs eligible for capitalization in financial statements?
How should an entity present borrowing costs in the income statement of financial statements?
How should an entity present borrowing costs in the balance sheet of financial statements?
How should an entity account for borrowing costs incurred in the acquisition of a qualifying asset in financial statements? (2:17)
How should an entity account for borrowing costs incurred during the construction of a qualifying asset in financial statements?
How should an entity account for changes in the expected cost of borrowing in financial statements?
How should an entity account for borrowing costs related to asset disposal in financial statements?
How should an entity account for borrowing costs related to capitalization thresholds in financial statements?
How should an entity account for borrowing costs related to investments in joint ventures in financial statements?

EVOLUTION OF ACCOUNTING STANDARD AND ITS FUTURE DEVELOPMENT.

How has IAS 23 evolved over time, and what are some potential future developments in this area?

IFRS : AS AN AUDITOR !

What you need to know about IAS 23 as an auditor?
What are the key considerations for auditors in relation to IAS 23?

IFRS & ACCOUNTING RATIOS:

What all Accounting Ratios does IAS 23 connects which may get affected?
Examples of how the application of IAS 23 can impact various accounting ratios:
Table summarizing how the application of IAS 23 can impact various accounting ratios:

IAS 23 INTERACTION WITH OTHER ACCOUNTING STANDARDS!

What do you understand by interaction of accounting standards and why are they important to be understood in general?
How does IAS 23 interacts with other accounting standards?
What do you understand by interaction of accounting standards and why are they important to be understood?
How can one approach towards understanding the interaction between accounting standards?
What if one fails to understand the interaction of accounting standards? How does it impact Financial reporting?
Interaction of IAS 23 with other accounting standards: TABULATION!

CLIMATE IMPACT: IAS 23

Discuss the potential climate impact on IAS 23;
How the Climate impact on IAS 23 be mitigated?

TEST YOUR UNDERSTANDING - IAS 23 BORROWING COSTS

TEST YOUR UNDERSTANDING - IAS 23 BORROWING COSTS

IAS 23 Borrowing Costs - PRACTICAL ILLUSTRATIONS

QUESTIION 1 Illustration 1 Alpha Limited on 1st April 2018 borrowed 9% $ 30,00,000 to finance the construction of two qualifying assets. Construction started on 1st April 2018. The loan facility was availed on 1st April 2018 and was utilized as follows with remaining funds invested temporarily at 7%. Date Factory Building Office Building 1st April 2018 5,00,000 10,00,000 1st October 2018 5,00,000 10,00,000 Calculate the cost of the asset and the borrowing cost to be capitalized.
QUESTIION 2 Illustration 2 Beta Limited had the following loans in place at the end of 31st March 2018: (Amounts in $ 000s) Loan 1st April 2017 31st March 2018 18% Bank Loan 1,000 1,000 16% Term Loan 3,000 3,000 14% Debentures - 2,000 14% debenture was issued to fund the construction of Office building on 1st July 2017 but the development activities has yet to be started. On 1st April 2017, Beta Limited began the construction of a Plant being qualifying asset using the existing borrowings. Expenditure drawn down for the construction was: $ 500,000 on 1st April 2017 and $ 2,500,000 on 1st January 2018. Required to calculate the borrowing cost that can be capitalized for the plant.
QUESTIION 3 Illustration 3: Commencement Date X Limited is commencing a new construction project, which is to be financed by borrowing. The key dates are as follows: i) 15 May 2017: Loan interest relating to the project starts to be incurred ii) 2 June 2017: Technical site planning commences iii) 19 June 2017: Expenditure on the project started to be incurred iv) 18 July 2017: Construction
QUESTIION 4 lllustration 4 Marine Transport Limited ordered 3 ships for its fleet on April 1, 2016. It pays a down payment of 25% of the contract value of each of the ship out of long term borrowings from a scheduled bank. The delivery has to commence from the financial year 2017. On March 1, 2018, the ship builder informs that it has commenced production of one ship. There is no progress on other 2 ships. Marine Transport Limited prepares its financial statements on financial year basis. Is it permissible for Marine Transport Limited to capitalize any borrowing costs for the financial year ended March 31, 2017 or March 31, 2018?
QUESTIION 5 IIlustration 5 X Limited has a treasury department that arranges funds for all the requirements of the Company including funds for working capital and expansion programs. During the year ended March 31, 2018, the Company commenced the construction of a qualifying asset and incurred the following expenses: Date Amt. ($) July 1, 2017 2,50,000 December 1, 2017 3,00,000 The details of borrowings and interest thereon are as under: Particulars Average Balance ($) Interest ($) Long term loan @ 10% 10,00,000 1,00,000 Working capital loan @ 13% 5,00,000 65,000 Total 15,00,000 1,65,000 Compute the borrowing costs that need to be capitalized.
QUESTIION 6 Illustration 6 ABC Limited has taken a loan of USD 20,000 on April 1, 2017 for constructing a plant at an interest rate of 5% per annum payable on annual basis. On April 1, 2017, the exchange rate between the currencies i.e. USD v/s INR was $ 45 per USD. The exchange rate on the reporting date i.e. March 31, 2018 is $ 48 per USD. The corresponding amount could have been borrowed by ABC Limited from State bank of India in local currency at an interest rate of 11% per annum as on April 1, 2017. Compute the borrowing cost to be capitalized for the construction of plant by ABC Limited
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IAS 23 Borrowing Costs - PRACTICALS PROBLEM WITH CALCULATION !

QUESTION 1 X Inc company issues 100 million 5 year 10% Debentures of $.100 at 99.0583. Related issue expenses are $ 1 million. The borrower company will account for this borrowing under IFRS 9 applying amortized cost method. These debentures are not quoted. Suppose that issue expenses are paid at the time of the issue. Market yield rate at the time of issue of Debenture is 10.250%. Record the transactions in the books of X Inc.
QUESTION 2 In continuation question 1, if issue expenses are charged to the Income Statement as component of borrowing cost how it would be recorded.
QUESTION 3 Entity H, which belongs to hyper-inflationary economies, borrowed $ 100 million @ 40% in the backdrop of 350% annual inflation. The borrowed money is invested in a qualifying asset. During 2017 the qualifying asset remained under construction. How much of the borrowing costs should the entity capitalize?
QUESTION 4 Continue with the data and analysis presented in question 1. It is a specific borrowing for investment in a power plant. Since presently there is requirement for only 50% of the money raised and the balance will be required after six months for year 1, the entity invested such funds temporarily for 6 months @ 4% p. a. What should the borrowing cost under Para 12 of IAS 23 for Year 1?
QUESTION 5 Following is the details of qualifying assets and borrowing cost of related assets: $ in Million Particulars QA1 QA2 QA3 Total Investments till date 200.00 240.00 600.00 1040.00 Specific Borrowings 110.00 90.00 50.00 250.00 a. Specific Borrowing costs computed applying amortized cost method 10.00 8.50 4.70 23.20 b. Investments Income from specific borrowings 0.80 1.01 0.35 2.16 General Borrowings 9% Debentures outstanding for 6 months 500.00 Borrowing cost under amortized cost method 22.50 8.5% Loans outstanding for 4 months 480.00 Borrowing cost under amortized cost method 13.60 Total borrowing costs of general borrowings 35.60 Total amount of general borrowings 980.00 You are required to ascertain the borrowing cost of to be capitalized.
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IAS 23 Borrowing Costs - IMPORTANT EXAM RELATED TECHNICAL POINTS

IAS 23 EXAM RELATED TECHNICAL POINTS
How can one teach IAS 23?
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IAS 23 Borrowing Costs - PPT PRESENTATION AND COURSE NOTES

IAS 23 Borrowing Costs - PPT PRESENTATION AND COURSE NOTES
REAL WORLD EXAMPLE UNDER IAS 23

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QUESTIION 4 lllustration 4 Marine Transport Limited ordered 3 ships for its fleet on April 1, 2016. It pays a down payment of 25% of the contract value of each of the ship out of long term borrowings from a scheduled bank. The delivery has to commence from the financial year 2017. On March 1, 2018, the ship builder informs that it has commenced production of one ship. There is no progress on other 2 ships. Marine Transport Limited prepares its financial statements on financial year basis. Is it permissible for Marine Transport Limited to capitalize any borrowing costs for the financial year ended March 31, 2017 or March 31, 2018?

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