After studying Appendix 10, you should be able to: Calculate the amount of borrowing costs to capitalize the qualifying assets, understand and apply the revaluation model using the proportionate method. | 1 CHAPTER 10: PROPERTY, PLANT, AND EQUIPMENT: ACCOUNTING MODEL BASICS Appendix A & B 2 Chapter 10: Property, Plant, and Equipment: Accounting Model Basics After studying Appendix 10A , you should be able to: Calculate the amount of borrowing costs to capitalize the qualifying assets. After studying Appendix 10B , you should be able to: 10. Understand and apply the revaluation model using the proportionate method. 3 3 Appendix 10A – Capitalization of Borrowing Costs Borrowing costs are made up of interest and related costs that company incurs related to the borrowing of funds. The cost of equity financing is specifically excluded Four issues need to be considered in determining the amount of borrowing costs to be capitalized and how to report them: Which assets qualify? What is the capitalization period? What are the avoidable borrowing costs – the amount eligible to capitalize? What disclosures are needed? 4 LO9 4 Appendix 10A – Capitalization of Borrowing Costs Qualifying Assets Must require substantial time to get ready for their intended use or sale May include inventories, items of property, plant or equipment; investment properties; or intangible assets Capitalize Borrowing costs for qualifying assets measured at fair value and inventories that are produced in large quantities on a repetitive basis may be capitalized Do Not Capitalize Assets that are already in use or ready for their intended use when acquired; those produced over a short period of time and assets not undergoing activities necessary to get them ready for use, such as land that is not being developed and assets that are not being used because of obsolescence 5 LO9 5 Appendix 10A – Capitalization of Borrowing Costs Capitalization Period Begins on the commencement date, which is when all three of the following conditions are met: Expenditures for the asset have been made Activities that are necessary to get the asset ready for tis intended use or sale are in progress, including necessary . | 1 CHAPTER 10: PROPERTY, PLANT, AND EQUIPMENT: ACCOUNTING MODEL BASICS Appendix A & B 2 Chapter 10: Property, Plant, and Equipment: Accounting Model Basics After studying Appendix 10A , you should be able to: Calculate the amount of borrowing costs to capitalize the qualifying assets. After studying Appendix 10B , you should be able to: 10. Understand and apply the revaluation model using the proportionate method. 3 3 Appendix 10A – Capitalization of Borrowing Costs Borrowing costs are made up of interest and related costs that company incurs related to the borrowing of funds. The cost of equity financing is specifically excluded Four issues need to be considered in determining the amount of borrowing costs to be capitalized and how to report them: Which assets qualify? What is the capitalization period? What are the avoidable borrowing costs – the amount eligible to capitalize? What disclosures are needed? 4 LO9 4 Appendix 10A – Capitalization of Borrowing Costs Qualifying Assets Must
