ONLY COPY AND PASTE ANSWERS!!! According to the Codification Research Case, your
ID: 2559328 • Letter: O
Question
ONLY COPY AND PASTE ANSWERS!!!According to the Codification Research Case, your client is in the planning phase for a major plant expansion, which will involve the construction of a new warehouse. The assistant controller does not believe that interest cost can be included in the cost of the warehouse, because it is a financing expense. Others on the planning team believe that some interest cost can be included in the cost of the warehouse, but no one could identify the specific authoritative guidance for this issue. Your supervisor asks you to research this issue.Provide Codification references for your responses.
(a) Is it permissible to capitalize interest into the cost of assets? Provide authoritative support for your answer.
(b) What are the objectives for capitalizing interest?
(c) Discuss which assets qualify for interest capitalization.
(d) Is there a limit to the amount of interest that may be capitalized in a period?
(e) If interest capitalization is allowed, what disclosures are required? ONLY COPY AND PASTE ANSWERS!!!
According to the Codification Research Case, your client is in the planning phase for a major plant expansion, which will involve the construction of a new warehouse. The assistant controller does not believe that interest cost can be included in the cost of the warehouse, because it is a financing expense. Others on the planning team believe that some interest cost can be included in the cost of the warehouse, but no one could identify the specific authoritative guidance for this issue. Your supervisor asks you to research this issue.Provide Codification references for your responses.
(a) Is it permissible to capitalize interest into the cost of assets? Provide authoritative support for your answer.
(b) What are the objectives for capitalizing interest?
(c) Discuss which assets qualify for interest capitalization.
(d) Is there a limit to the amount of interest that may be capitalized in a period?
(e) If interest capitalization is allowed, what disclosures are required? ONLY COPY AND PASTE ANSWERS!!!
According to the Codification Research Case, your client is in the planning phase for a major plant expansion, which will involve the construction of a new warehouse. The assistant controller does not believe that interest cost can be included in the cost of the warehouse, because it is a financing expense. Others on the planning team believe that some interest cost can be included in the cost of the warehouse, but no one could identify the specific authoritative guidance for this issue. Your supervisor asks you to research this issue.Provide Codification references for your responses.
(a) Is it permissible to capitalize interest into the cost of assets? Provide authoritative support for your answer.
(b) What are the objectives for capitalizing interest?
(c) Discuss which assets qualify for interest capitalization.
(d) Is there a limit to the amount of interest that may be capitalized in a period?
(e) If interest capitalization is allowed, what disclosures are required?
Explanation / Answer
.(a) Yes, it is permissible to capitalize interest into the cost of asset.
According to IAS-23 “Capitalization of borrowing costs” of International Financial Reporting standards(IFRS), borrowing costs attributable to acquisition of a qualifying assets must be capitalized. Borrowing cost includes interest cost.
.(b). Objectives of capitalization of interest:
.(c) Assets qualifying for interest capitalization:
Qualifying assets are assets that require a substantial period of time to get ready for use or sale. Examples of qualifying assets are industrial plants, real estate, infrastructure assets like bridges, roads , railways etc.
(d) Limit to the amount of interest that can be capitalized in a period:
The actual borrowing cost for acquiring a qualifying assets can be capitalized. If the borrowing is invested temporarily to get investment income, this should be subtracted from the borrowing costs.
Only the interest costs incurred during the period required to complete the asset can be capitalized.
The upper limit of capitalizing interest is the interest cost that could have been avoided, if the asset was not acquired.
.(e) Disclosures required:
The Financial statements should contain following disclosures:
.(i) If there is no interest cost capitalized in an accounting period,the amount of interest incurred and charged to expense
.(ii) If interest is capitalized in an accounting period,total amount of interest cost incurred and the amount of interest capitalized during the period.
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