1. Financial Accounting II Lecture 07

2. Disclosure Requirements For Property Plant and Equipment

3. Disclosure Requirements
The measurement basis used for determining the gross carrying amount.
When more than one basis has been used, the carrying amount for that basis in each category should be disclosed.

4. Sample
Tangible fixed assets are stated at cost less accumulated depreciation except land and capital work in progress, which are stated at cost.

5. Disclosure Requirements
The depreciation method used.
Straight Line Method.
Written Down Value / Diminishing Balance Method
The useful lives or the depreciation rates used.

6. Sample
Depreciation on operating fixed assets is provided on a straight-line-basis. Rates of depreciation, which are disclosed in note 5, are designed to write off the cost over the estimated useful lives of the assets.
One month’s depreciation is charged in month of addition and no depreciation is charged in the month of deletion.

7. Sample
Maintenance and normal repairs are charges to income as and when incurred. Major renewals and improvements are capitalized. Gains and losses on disposals are determined by comparing the sale proceeds with the carrying value and are included in the profit and loss account for the year.

8. Disclosure Requirements
A reconciliation of the carrying amount at the beginning and end of the period.
Comparative figures are not required for reconciliation.

10. Disclosure Requirements
The financial statements should also disclose.
The existence and amount of restrictions on title, and property plant and equipment pledged as security.
The accounting policy for estimated costs of restoring site of items of property plant and equipment

11. Disclosure Requirements
The amount of expenditures on account of property, plant and equipment in the course of construction.
The amount of commitments for the acquisition of property, plant and equipment.

12. Disclosure Requirements
Where the items of property plant and equipment are stated at revalued amount the following should be disclosed:
The basis used for revaluation
The effective date of revaluation
Whether an independent valuer was involved

13. Disclosure Requirements
The carrying amount of each class of property plant and equipment if they had not been revalued.
The revaluation surplus indicating the movement for the period and any restrictions of distributions of the balance to the shareholders.

14. Borrowing Costs IAS 23

15. Borrowing Costs
IAS 23 generally requires that the borrowing costs should be charged as an expense.
However it allows capitalization of these costs as an alternate treatment, if certain conditions are met.

16. Borrowing Costs
Borrowing costs are interest and other costs incurred in connection of borrowing of funds.

17. Borrowing Costs Borrowing costs may include:
Markup on running finances, short and long term finance,
Other costs incurred in connection with borrowings,
Markup on in respect of finance leases,
Exchange differences arising from foreign currency borrowings to the extent that they are regarded as adjustment to interest cost.

18. Recognition of Borrowing Costs
Under the benchmark treatment of IAS 23 borrowing cost should be treated as expense in the period they are incurred regardless of the of how the loan is used.

19. Disclosure Requirements
If benchmark treatment is used the enterprise is only required to disclose the policy adopted for borrowing costs.

20. Capitalization of Borrowing Costs
IAS 23 allows capitalization of borrowing cost as an allowed alternative to the benchmark. The IAS states:
“Borrowing costs that are directly attributable to to the acquisition, construction or production of a qualifying asset should be capitalized as cost of the asset”.

21. Qualifying Asset – IAS 23 Qualifying asset is an asset:
“That necessarily takes a substantial period of time to get ready for its intended use”.

22. Borrowing Costs Eligible for Capitalization
Only those borrowing costs are eligible for capitalization that would have been avoided if the expenditure on the qualifying asset had not been made.

23. Borrowing Costs Eligible for Capitalization
It may be easy to identify these costs if the funds are specifically borrowed for the asset.

24. Borrowing Costs Eligible for Capitalization
If the funds are used from the funds generally borrowed for the enterprise the amount to be capitalized should be calculated by applying a weighted average borrowing rate to the expenditure on asset.

25. Commencement and Cessation Capitalization
Capitalization of borrowing costs should begin when:
Expenditure on assets are being incurred
Borrowing cost are being incurred
Activities that are necessary to prepare the asset to its intended use are in progress.

26. Commencement and Cessation Capitalization
Capitalization of borrowing costs should be suspended if:
Active development of the asset is suspended for an extended period.

27. Commencement and Cessation Capitalization
Capitalization of borrowing costs should cease when:
Substantially all activates necessary to prepare an asset for its intended use or sale are complete.

28. Disclosure Requirements
The accounting policy adopted for borrowing costs.
The amount of borrowing costs capitalized during the period.
The capitalization rate used to determine the amount borrowing costs eligible for capitalization.

29. Financial Accounting II Lecture 07