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[/et_pb_text][/et_pb_column][/et_pb_row][/et_pb_section][et_pb_section admin_label=”Section” fullwidth=”off” specialty=”off”][et_pb_row admin_label=”Row”][et_pb_column type=”1_2″][et_pb_text admin_label=”Text” background_layout=”light” text_orientation=”center” text_font_size=”14″ use_border_color=”off” border_color=”#ffffff” border_style=”solid”] [button link=”http://www.frs102.com/members/premium-toolkit/” type=”big” color=”red”] Return to Main Index[/button] [/et_pb_text][/et_pb_column][et_pb_column type=”1_2″][et_pb_text admin_label=”Text” background_layout=”light” text_orientation=”center” text_font_size=”14″ use_border_color=”off” border_color=”#ffffff” border_style=”solid”] [button link=”http://frs102.com/members/premium-toolkit/section-25/” type=”big” color=”red”] Return to Section 25 Home[/button] [/et_pb_text][/et_pb_column][/et_pb_row][/et_pb_section][et_pb_section admin_label=”Section” fullwidth=”off” specialty=”off” transparent_background=”off” allow_player_pause=”off” inner_shadow=”off” parallax=”off” parallax_method=”off” padding_mobile=”off” make_fullwidth=”off” use_custom_width=”off” width_unit=”on” make_equal=”off” use_custom_gutter=”off” gutter_width=”3″][et_pb_row admin_label=”Row”][et_pb_column type=”4_4″][et_pb_text admin_label=”Main Body Text” background_layout=”light” text_orientation=”justified” use_border_color=”off” border_color=”#ffffff” border_style=”solid”]Disclosures
Extract from FRS102: Section 25.3 – 25.3A
25.3 Paragraph 5.5 sets out the presentation requirements for items of profit or loss, including interest payable. Paragraph 11.48(b) requires disclosure of total interest expense (using the effective interest method) for financial liabilities that are not at fair value through profit or loss. When a policy of capitalising borrowing costs is not adopted, this section does not require any additional disclosure.
25.3A Where a policy of capitalisation is adopted, an entity shall disclose:
(a) the amount of borrowing costs capitalised in the period; and
(b) the capitalisation rate used
OmniPro comment
See below illustration of the disclosure requirements. In addition Section 8 of FRS 102 requires an accounting policy note and the significant judgements used e.g. criteria for determining qualifying assets, meaning of capitalisation rate and a substantial period of time.
Example 4: Extract from an accounting policy note and critical accounting judgements and estimates in the financial statements
(a) Property plant and equipment
Cost
Property, plant and equipment are recorded at historical cost or deemed cost, less accumulated depreciation and impairment losses. Cost includes prime cost, overheads and interest incurred in financing the construction of tangible fixed assets. Capitalisation of interest ceases when the asset is brought into use. The company capitalises general borrowing costs which are directly attributable to the acquisition of the qualifying asset. The capitalisation rate used is a weighted average of the rates applicable to the company’s general borrowings that are outstanding during the period. Borrowing costs are capitalised where the asset take a substantial period of time which is usually greater than one year to get ready for its intended use.
(b) Interest paid
Interest costs comprise interest payable on borrowings and finance lease costs. The interest expense component of finance lease payments is recognised in the Profit and Loss account using the effective interest rate method.
(c) Borrowings
Borrowings are recognised initially at the transaction price (present value of cash payable to the bank, including transaction costs). Borrowings are subsequently stated at amortised cost. Interest expense is recognised on the basis of the effective interest method and is included in finance costs.
Borrowings are classified as current liabilities unless the Company has a right to defer settlement of the liability for at least 12 months after the reporting date.
(d) Trade and other payables
Accounts payable are classified as current liabilities if payment is due within one year or less. If not, they are presented as non-current liabilities. Trade payables, other payable and amounts due to group companies are recognised initially at the transaction price net of transaction costs and subsequently measured at amortised cost using the effective interest method.
Critical Accounting Judgements and Estimates
The preparation of these financial statements requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses.
Judgements and estimates are continually evaluated and are based on historical experiences and other factors, including expectations of future events that are believed to be reasonable under the circumstances.
The company makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below.
- Borrowing costs – capitalisation rate
The company has adopted a policy of capitalising qualifying borrowing costs. The company capitalises general borrowing costs which are directly attributable to the acquisition of the qualifying asset. The capitalisation rate used is a weighted average of the rates applicable to the company’s general borrowings that are outstanding during the period. Given that weighted averages are utilised this results in a level of estimation. In determining the capitalisation rate the company excludes any specific borrowings related to obtaining non-qualifying assets.
Example 5: Extract from the notes to the financial statements – note fixed asset note is used here however the same narrative would be required for any other type of qualifying asset.
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Tangible fixed assets |
Land and buildings |
Plant and Machinery |
Total |
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CU |
CU |
CU |
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Cost |
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|
|
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At 1 January 2015 |
19,792 |
72,731 |
92,523 |
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Additions |
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Disposals |
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At 31 December 2015 |
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Accumulated depreciation |
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At 1 January 2015 |
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Charge for year |
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Disposals |
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At 31 December 2015 |
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Net book value amount |
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At 31 December 2015 |
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At 31 December 2014 |
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The company capitalised CUXXX (2014: CUXXXX) in borrowing costs during the year. The capitalisation rate used was X% (2014: X%).
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Note: Interest payable and similar expenses |
2015 |
|
2015 |
|
Interest payable on bank loans and overdrafts |
10000 |
|
10000 |
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Preference share dividend |
2000 |
|
2000 |
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Finance lease interest |
1000 |
|
1000 |
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Interest on inter-group loan |
10000 |
|
10000 |
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Total interest payable on financial assets not measured at fair value through profit and loss i.e. on an amortised cost basis |
23000 |
|
23000 |
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|
|
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|
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Loss on derivative financial instruments |
1000 |
|
1000 |
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Total interest payable and similar expenses |
24000 |
|
24000 |
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