FRS 23 Borrowing Costs – ACCA Conference 2008

Current rule – interest accruing on ongoing projects shall be expensed off

New rule – such interest can be capitalised

Implications

  • balance sheets could be carrying assets with bloated values initially and subsequently requiring more effort in reviewing them for impairment
  • difference in capital/financing structure would have a direct implication on the carrying value of the asset

Delays in completion of projects under current economic environment ==> would mean that more of the interest “expense” would be capitalised onto the balance sheets instead being expensed off in the P&L.

Mr Kon Yin Tong, Partner of Foo Kon Tan Grant Thornton said he is not comfortable with the new rule. As for me, I would need to find out the basis behind Accounting Standards Council’s (ASC) reasons for the change in the first place. Can someone share on this?

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One Comment

  1. quoted from the standardAn entity shall suspend capitalisation of borrowing costs during extended periods in which it suspends active development of a qualifying asset.however delay does not mean suspend.Current rule – interest accruing on ongoing projects shall be expensed off.i don’t really understand this. i thought the borrowing cost should be capiltised?

    Reply

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