[et_pb_section bb_built=”1″ admin_label=”Header – All Pages” transparent_background=”off” background_color=”#1e73be” 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″ custom_padding=”||0px|” next_background_color=”#ffffff” custom_padding_tablet=”50px|0|50px|0″ custom_padding_last_edited=”on|desktop” global_module=”1221″][et_pb_row admin_label=”row” global_parent=”1221″ background_position=”top_left” background_repeat=”repeat” background_size=”initial”][et_pb_column type=”4_4″][et_pb_post_title global_parent=”1221″ title=”on” meta=”off” author=”on” date=”on” categories=”on” comments=”on” featured_image=”off” featured_placement=”below” parallax_effect=”on” parallax_method=”off” text_orientation=”left” text_color=”light” text_background=”off” text_bg_color=”rgba(255,255,255,0.9)” module_bg_color=”rgba(255,255,255,0)” title_all_caps=”off” use_border_color=”off” border_color=”#ffffff” border_style=”solid” title_font=”|on|||” title_font_size=”35″ custom_padding=”10px|||” parallax=”on” background_color=”rgba(255,255,255,0)” /][/et_pb_column][/et_pb_row][/et_pb_section][et_pb_section bb_built=”1″ fullwidth=”off” specialty=”off” transparent_background=”off” allow_player_pause=”off” inner_shadow=”off” parallax=”off” parallax_method=”off” custom_padding=”0px||0px|” padding_mobile=”on” make_fullwidth=”off” use_custom_width=”off” width_unit=”on” make_equal=”off” use_custom_gutter=”off” gutter_width=”3″ prev_background_color=”#1e73be” next_background_color=”#ffffff” custom_padding_tablet=”0px||0px|” global_module=”1228″][et_pb_row global_parent=”1228″ make_fullwidth=”off” use_custom_width=”off” width_unit=”on” use_custom_gutter=”off” gutter_width=”3″ custom_padding=”0px||0px|” padding_mobile=”off” allow_player_pause=”off” parallax=”off” parallax_method=”off” make_equal=”off” parallax_1=”off” parallax_method_1=”off” column_padding_mobile=”on” background_position=”top_left” background_repeat=”repeat” background_size=”initial”][et_pb_column type=”4_4″][et_pb_text global_parent=”1228″ background_layout=”light” text_orientation=”left” text_font_size=”14″ use_border_color=”off” border_color=”#ffffff” border_style=”solid” background_position=”top_left” background_repeat=”repeat” background_size=”initial”]
[/et_pb_text][/et_pb_column][/et_pb_row][/et_pb_section][et_pb_section bb_built=”1″ 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″ custom_padding_tablet=”0px||0px|” custom_padding_last_edited=”on|desktop” prev_background_color=”#ffffff” next_background_color=”#000000″][et_pb_row][et_pb_column type=”4_4″][et_pb_toggle admin_label=”Index” _builder_version=”3.0.106″ title=”Index” open=”off”]Contents
25.1.1 Extract from FRS102: Section 25.1.
25.1.2.2 Borrowing costs defined.
25.1.2.2.1 Interest charged on the effective interest method.
25.1.2.2.1.1 Examples of interest considered for capitalisation.
25.1.2.2.1.2 Examples of costs not eligible for capitalisation.
25.1.2.2.2 Finance lease interest.
25.1.2.2.3 Exchange differences.
25.2.1 Extract from FRS102: Section 25.2 – 25.2C.
25.2.2.1 Definition of qualifying asset.
25.2.2.2 Accounting policy choice and qualifying borrowing costs.
25.2.2.3 Substantial period of time.
25.2.2.4 Class of qualifying assets- consistency.
25.2.2.5 Borrowing costs less any investment income generated.
25.3 Commencement and cessation of capitalisation.
25.3.1Extract from FRS102: Section 25.2D.
25.3.2.1 Commencement of capitalisation.
25.3.2.2. Suspension of capitalisation.
25.3.2.3 Cessation of capitalisation.
25.4.1 Extract from FRS102: Section 25.3 – 25.3A.
25.4.2.2.1 Property plant and equipment.
25.4.2.2.4 Trade and other payables.
25.4.2.3 Critical Accounting Judgements and Estimates.
25.4.2.4. Notes to the financial statements.
[/et_pb_toggle][/et_pb_column][/et_pb_row][et_pb_row][et_pb_column type=”3_4″][et_pb_text admin_label=”Main Body Text” background_layout=”light” text_orientation=”justified” use_border_color=”off” border_color_all=”off” module_alignment=”left” _builder_version=”3.0.106″]
25.3 Commencement and cessation of capitalisation
25.3.1Extract from FRS102: Section 25.2D
25.2D An entity shall:
(a) capitalise borrowing costs as part of the cost of a qualifying asset from the point when it:
– first incurs both expenditure on the asset and borrowing costs, and
– undertakes activities necessary to prepare the asset for its intended use or sale;
(b) suspend capitalisation during extended periods where active development of the asset has paused; and
(c) cease capitalisation when substantially all the activities necessary to prepare the qualifying asset for its intended use or sale are complete.
25.3.2 OmniPro comment
25.3.2.1 Commencement of capitalisation
Section 25.2D of FRS 102 states that capitalisation commence when the entity first incurs expenditures on the asset and carries on activities to get ready for its intended use or sale. Section 25.2D(a) of FRS 102 does not specify the meaning of ‘activities necessary to prepare the asset for its intended use or sale’. However guidance is given in IFRS namely IAS 23. IAS 23 makes it clear that this can include more than the physical construction of the asset. Necessary activities can start before the commencement of physical construction and include, for example, technical and administrative work such as obtaining permits. However the permits should be necessary for the construction to proceed. Also consideration needs to be given at the point the cost of the permit is incurred as to whether it meets the definition of an asset i.e. is it likely that future economic benefits will be derived.
25.3.2.2 Suspension of capitalisation
Borrowing costs may not be capitalised during a period in which there are no activities that change the condition of the asset as stated in section 25.2D(b) FRS 102 e.g. a property developer cannot capitalise the borrowing costs on purchasing land which will be used for construction at some point in the future. Also borrowing costs on an advance payment made to an entity constructing the asset should not be capitalised until the construction company starts constructing the asset.
Borrowing costs incurred during periods of interruption caused by a lack of funding or strategic decisions to hold back project developments during a period of economic downturn are not considered a necessary part of preparing the asset for its intended purpose and should not be capitalised.
25.3.2.3 Cessation of capitalisation
Section 25.2D of FRS 102 states that capitalisation should cease when all the activities neccessay to prepare the qualifying asset for its intended use or sale are complete. IAS 23 of IFRS provides further guidance on the meaning of this and states this is usually when the physical construction of the asset is complete, even though routine administrative work might still continue. If minor modifications such as decoration of a property to the purchaser’s or user’s specification, are all that are outstanding, this indicates that substantially all the activities are complete. Also where an asset is ready and all that is needed is an inspection before the asset is put into use, then capitalisation should cease prior to the inspection.
IAS 23 would state that where part of an asset can be used even though a whole project is not completed, then capitalisation of borrowings on that element of the asset should cease e.g. a number of buildings are being built but once a building is built it is ready for use and can be used. Where on the other hand the part of the asset cannot be used until all the assets are constructed then capitalisaton should continue until the entire asset is ready for use.
[/et_pb_text][/et_pb_column][et_pb_column type=”1_4″][et_pb_toggle _builder_version=”3.0.106″ title=”Practical Examples” open=”off”]
Examples
Example 1: Borrowing costs net of investment income.
Example 2: Calculation of capitalisation rate.
[/et_pb_toggle][/et_pb_column][/et_pb_row][/et_pb_section]