CFAS - CHAPTER 17
c
Borrowing cost can be capitalized as cost of the asset when a. The asset is a qualifying asset and it is not probable that the borrowing cost will result in future economic benefit to the entity. b. The asset is a qualifying asset and it is probable that the borrowing cost will result in future economic benefit to the entity but the cost cannot be measured reliably. c. The asset is a qualifying asset and it is probable that the borrowing cost will result in future economic benefit to the entity and the cost can be measured reliably. d. The asset is a qualifying asset.
b
Borrowing cost is defined as a. Exchange difference arising from foreign currency borrowing to the extent that this is regarded as an adjustment to interest cost. b. Interest and other cost that an entity incurs in connection with borrowing of fund. c. Interest expense using the effective interest method. d. Finance charge in respect of finance lease.
d
Capitalization of borrowing cost a. Shall be suspended during temporary period of delay. b. May be suspended only during extended period of delay in which active development is delayed. c. Shall never be suspended. d. Shall be suspended only during extended period of delay in which active development is delayed.
a
If the qualifying asset is financed by general borrowing, the capitalizable borrowing cost is equal to a. Average expenditures on the asset multiplied by a capitalization rate or actual borrowing cost incurred, whichever is lower b. Actual borrowing cost incurred c. Total expenditures on the asset multiplied by a capitalization rate d. Average expenditures on the asset multiplied by a capitalization rate or actual borrowing cost incurred, whichever is higher
a
If the qualifying asset is financed by specific borrowing, the capitalizable borrowing cost is equal to a. Actual borrowing cost incurred up to completion of asset minus any investment income from the temporary investment of the borrowing. b. Actual borrowing cost incurred c. Actual borrowing cost incurred up to completion of asset d. Zero
a
Interest income on specific borrowing for qualifying asset a. Reduces the cost of the qualifying asset. b. Reduces interest expense reported in the income statement. c. Increases equity. d. Must be credited to interest income.
a
The capitalization of interest is appropriate' during a construction delay that is a. Related to permit processing or inspection b. Permanent due to extended period of interruption c. All of these require capitalization of interest
c
The period of time during which interest must be capitalized ends when a. The asset is abandoned, sold or fully depreciated. b. The activities that are necessary to get the asset ready for the intended use have begun. c. The asset is substantially complete and ready for the intended use. d. No further interest is being incurred.
a
When computing the amount of interest to be capitalized the concept of avoidable interest refers to a. That portion of total interest which would not have been incurred if expenditures for asset construction had not been made. b. The total interest actually incurred. c. A cost of capital charge for shareholders' equity. d. That portion of average accumulated expenditures on which no interest was incurred.
c
Which is a required disclosure regarding interest? a. Total capitalized interest for the period b. The capitalization rate used to determine the capitalizable interest c. All of these are required disclosure regarding interest d. Total interest incurred for the period
c
Which is not a disclosure requirement in relation to borrowing cost? a. Amount of borrowing cost capitalized during the period b. Capitalization rate used to determine the amount of borrowing cost eligible for capitalization c. Segregation of qualifying asset from other assets d. Accounting policy adopted for borrowing cost
d
Which is required for borrowing costs incurred directly attributable to a qualifying asset? a. Recognize as an expense in the period incurred b. Either recognize as an expense in the period incurred or capitalize as part of the cost of the asset c. Recognize as a deferred charge d. Capitalize as part of the cost of the asset
a
Which is the approach in accounting for interest incurred in financing construction of property? a. Capitalize only the actual interest incurred during construction. b. Charge construction with all costs of funds employed. c. Capitalize n0 interest during construction. d. Capitalize interest equal to the prime interest rate times the estimated cost of the asset being constructed
c
Which of the following cost may not be eligible for capitalization as borrowing cost? a. Amortization of discount or premium relating to borrowings that qualify for capitalization b. Exchange difference arising from foreign currency borrowings pertaining to a qualifying asset. c. Imputed cost of equity d. Interest on bonds issued to finance the construction of a qualifying asset
a
Which of the following could be treated as qualifying asset for the purpose of capitalizing borrowing cost? a. Investment property b. Financial asset at fair value c. Inventory that is manufactured in large quantity on a repetitive basis and takes a substantial period of time to get ready for use or sale d. Biological asset
a
Which of the following is not a condition that must be satisfied before interest capitalization can begin on a qualifying asset? a. The interest rate is equal to the bank prime rate. b. Interest is being incurred. c. Expenditures for the asset have been made. d. Activities necessary to get the asset ready for the intended use are in progress.
a
Which should not be considered a qualifying asset? a. An expensive jet that can be purchased from a vendor b. A power generation plant that takes two years to construct c. A toll bridge that usually takes more than a year to build d. A ship that normally takes one to two years to complete
a
Which statement about the capitalization of borrowing cost as part of the cost of a qualifying asset is true? a. If funds come from general borrowings, the amount to be capitalized is based on the average expenditures. b. Capitalization always continues until the asset is brought into use. c. Capitalization always commences as s0on as expenditure of the asset is incurred. d. Capitalization always commences as soon as interest on relevant borrowing is being incurred.
a
Which statement is correct regarding capitalized interest? a. The amount of capitalized interest on general borrowing is the lower of actual interest incurred or computed capitalized interest. b. Capitalized interest is reduced by income received on the unexpended portion of the general construction loan c. Interest after completion of construction is capitalized d. All of these statements are correct
d
Which statement is true concerning capitalization of borrowing cost? I. If the borrowing is directly attributable to a qualifying asset, the borrowing cost is required to be capitalized as cost of the asset. II. If the borrowing is not directly attributable to a qualifying asset, the borrowing cost shall be expensed as incurred. a. I only b. II only c. Neither I or II d. Both I and II