Borrowing Costs - Australian Accounting Standards …

1 Australian Accounting StandardAAS 34 December 1997 Borrowing CostsPrepared by thePublic Sector Accounting Standards board of theAustralian Accounting Research Foundation and by theAustralian Accounting Standards BoardIssued by theAustralian Accounting Research Foundationon behalf of the Australian Society of CertifiedPractising Accountants and The Institute ofChartered Accountants in AustraliaAAS 342 Obtaining a Copy of this Accounting StandardCopies of this Standard are available for purchase from the AustralianAccounting Research Foundation by contacting:The Customer Service OfficerAustralian Accounting Research Foundation211 Hawthorn RoadCaulfield Victoria 3162 AUSTRALIAP hone:(03) 9523 8111 Fax:(03) 9523 1997 Australian Accounting Research Foundation (AARF).

2 The text,graphics and layout of this Accounting Standard are protected by Australiancopyright law and the comparable law of other countries. No part of thisAccounting Standard may be reproduced, stored or transmitted in any formor by any means without the prior written permission of the AARF except aspermitted by 1034-3717 AAS 343 CONTENTSCONTENTSMAIN FEATURES OF THE STANDARD .. page 4 Section and page number1 Application .. 52 Operative Date .. 53 Purpose of Standard .. 64 Recognition of Borrowing Costs .. 65 Borrowing Costs to be Capitalised.

3 7 Funds Borrowed Generally .. 7 Funds Borrowed Specifically for a Qualifying Asset .. 86 Recoverable Amount .. 97 Commencement, Suspensionand Cessation of Capitalisation .. 9 Commencement of Capitalisation .. 9 Suspension of Capitalisation .. 10 Cessation of Capitalisation .. 108 Disclosures .. 119 Comparative Information .. 1210 Transitional Provisions .. 1211 Definitions .. 12 Assets, Liabilities, Equity, Revenues and Expenses .. 14 Borrowing Costs .. 14 Qualifying Assets .. 15 Exploration and evaluation in the extractive industries.

4 16 CONFORMITY WITH INTERNATIONAL AND NEWZEALAND Accounting Standards .. page 17 AAS 344 FEATURESDEVELOPMENT OF THE STANDARD .. page 18 Defined words appear in italics the first time they appear in asection. The definitions are in Section 11. Standards are printedin bold type and commentary in light FEATURES OF THE STANDARDThe Standard:(a) requires Borrowing Costs to be recognised as an expense in thereporting period in which they are incurred, except to the extentthey are capitalised(b)requires the capitalisation of Borrowing Costs that are directlyattributable to the acquisition, construction or production of aqualifying asset(c) prescribes when the capitalisation of Borrowing Costs in respect ofqualifying assets ceases or is suspended(d)prescribes the methods to be used to allocate Borrowing Costs toindividual qualifying assets(e)

5 Requires specified disclosures in relation to Borrowing Costs (f)defines Borrowing Costs and qualifying asset .AAS 345 Accounting STANDARDAAS 34 Borrowing Costs Standard applies to general purpose financial reports ofeach reporting entity to which Accounting Standards operativeunder the Corporations Law do not Standard also applies to financial reports that are held outto be general purpose financial reports by an entity which is nota reporting entity, and to which Accounting Standardsoperative under the Corporations Law do not Standards operative under the Corporations Law applyto companies and to other entities required by legislation.

6 Ministerial directive or other government authority to apply suchStandards. Reporting entities which are not required to applyAccounting Standards operative under the Corporations Law arerequired to apply this relation to the treatment of Borrowing Costs , this Standardoverrides the requirements of Australian Accounting StandardAAS 7 Accounting for the Extractive Industries . Standards specified in this Standard apply to the financialreport where information resulting from their application ismaterial, in accordance with Australian Accounting StandardAAS 5 Materiality.

7 2 Operative Standard applies to reporting periods ending on or after31 December Standard may be applied to reporting periods endingbefore 31 December 346 of purpose of this Standard is to:(a)prescribe the Accounting treatment of Borrowing Costs ,including when such Costs must be capitalised as part ofthe carrying amount of qualifying assets(b)prescribe the methods to be used to allocate borrowingcosts to individual qualifying assets(c)require certain disclosures to be made about of Borrowing Costs must be recognised as an expense in thereporting period in which they are incurred, except to theextent that they are capitalised in accordance with Costs that are directly attributable to the acquisition,construction or production of a qualifying asset must becapitalised as part of the cost of that asset in accordance withparagraphs to Borrowing Costs that are directlyattributable to the acquisition.

8 Construction or production of aqualifying asset must be determined as those Borrowing costswhich would have been avoided if the expenditure on thequalifying asset had not been incur a variety of Costs in the process of acquiring,constructing or producing assets, including interest and similarborrowing Costs . When it is probable that the incurrence ofborrowing Costs will result in future economic benefits and they canbe reliably measured, they are included in the carrying amount ofthose assets, subject to the assets in question meeting the definitionof qualifying assets (refer to paragraphs to ).

9 Costs are also incurred for purposes other than to acquirethe future economic benefits embodied in qualifying assets, inwhich case they are treated as part of the periodic expenses offinancing the entity s operations. This would include borrowingcosts relating to working capital and the holding of 347 Costs to be amount of Borrowing Costs capitalised during a reportingperiod must not exceed the amount of Borrowing Costs incurredduring that reporting period by the Borrowed the extent that funds are borrowed generally, the amount ofborrowing Costs to be capitalised to qualifying assets must bedetermined by applying a capitalisation rate to the weightedaverage accumulated expenditures relating to qualifying assetsduring the reporting period.

10 Such expenditures must give riseto Borrowing Costs that could have been avoided and must beincurred in making qualifying assets ready for their intendeduse or sale. These expenditures must be reduced by anyborrowings dealt with under paragraph , expendituresrecovered through progress payments received and specificpurpose or restricted grants received. The capitalisation ratemust be the weighted average rate applicable to the borrowingsof the entity that are outstanding during the reporting period,other than Borrowing Costs dealt with under paragraph may be made through a central treasury function withinan entity when it is opportune to do so.