BALIUAG UNIVERSITY

CPA Review Program

Theory of Accounts (FAR & AFAR)
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Module 9: Nonfinancial Assets Part 2 LVC

I. Agriculture (IAS 41)

 Definition of Terms
 Agricultural activity – The management by an entity of the biological transformation and harvest of
biological assets for sale or for conversion into agricultural produce or into additional biological assets.
 Agricultural produce – The harvested produce of the entity’s biological assets.
 Bearer plant – A living plant that: (a) is used in the production or supply of agricultural produce; (b) is
expected to bear produce for more than one period; and (c) has a remote likelihood of being sold as
agricultural produce, except for incidental scrap sales.
 Biological asset – A living animal or plant.
 Biological transformation – It comprises the processes of growth, degeneration, production, and
procreation that cause qualitative or quantitative changes in a biological asset.
 Costs to sell – Incremental costs directly attributable to the disposal of an asset, excluding finance costs
and income taxes.
 Group of biological assets – An aggregation of similar living animals or plants
 Harvest – The detachment of produce from a biological asset or the cessation of a biological asset’s life
processes.
 Scope
 IAS 41 applies to biological assets with the exception of:
a. Bearer plants
b. Agricultural produce at the point of harvest (after harvest, IAS 2 applies)
c. Government grants related to these biological assets.
 IAS 41 does not apply to
a. Land related to agricultural activity
b. Intangible assets related to agricultural activity
c. Government grants related to bearer plants.
 However, it does apply to produce growing on bearer plants.
 Examples of assets under IAS 41
Identify whether each item listed is a biological assets, agricultural produce or product after harvest
a. Carcass k. Picked fruit
b. Cheese l. Picked tea leaves
c. Cotton plants m. Sheep
d. Dairy cattle n. Sugar
e. Grape vines o. Tobacco plants
f. Harvested cane p. Trees in a timber plantation
g. Harvested cotton q. Wine
h. Yarn r. Wool
i. Palm oil s. Flowering plant used as food for bees
 Recognition
 An entity recognizes a biological asset or agriculture produce only when
a. The entity controls the asset as a result of past events
b. It is probable that future economic benefits will flow to the entity, and
c. The fair value or cost of the asset can be measured reliably.
 Measurement
 Biological assets within the scope of IAS 41 are measured on initial recognition and at subsequent
reporting dates at fair value less estimated costs to sell, unless fair value cannot be reliably measured.
 In such case that fair value cannot be reliably measured, biological assets shall be measured at cost less
accumulated depreciation and any accumulated impairment.
 Agricultural produce is measured at fair value less estimated costs to sell at the point of harvest. Because
harvested produce is a marketable commodity, there is no 'measurement reliability' exception for
produce.
 Fair value measurement of agricultural produce stops at point of harvest. After such date,
IAS 2- Inventories shall apply (lower of cost and net realizable value).
 Point of sale costs
a. Include commissions to brokers and dealers, levies by regulatory agencies and commodity exchanges,
transfer taxes and duties.

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b. Exclude transport and other costs necessary to bring the asset to a market.
 All costs related to biological assets that are measured at fair value are recognized as expenses when
incurred, other than costs to purchase biological assets.
 Gain or loss on subsequent measurement
 The gain/loss on initial recognition biological assets at fair value less costs to sell, and changes in fair value
less costs to sell of biological assets during a period, are included in profit or loss.
 A gain/loss on initial recognition of agricultural produce at fair value less costs to sell are included in profit
or loss for the period in which it arises.
 The change in fair value of biological assets is part physical (growth) change and part unit price change.
Separate disclosure of the two components is encouraged but not required.
 Financial statement presentation
 Biological assets shall be presented as a separate line item and classified as noncurrent assets.
 Agricultural produce is considered as inventories. IAS 41 applies until point of harvest and IAS 2 applies
after harvest.
 Other accounts
 Agricultural land is accounted for under IAS 16 - Property, Plant and Equipment.
 However, biological assets (other than bearer plants) that are physically attached to land are measured as
biological assets separate from the land. In some cases, the determination of the fair value less costs to
sell of the biological asset can be based on the fair value of the combined asset (land, improvements and
biological assets).
 Intangible assets relating to agricultural activity (for example, milk quotas) are accounted for under IAS 38 -
Intangible Assets.
 Unconditional government grants received in respect of biological assets measured at fair value less costs
to sell are recognized in profit or loss when the grant becomes receivable.
 If such a grant is conditional (including where the grant requires an entity not to engage in certain agricul-
tural activity), the entity recognizes the grant in profit or loss only when the conditions have been met.

II. Accounting for Government Grants and Disclosure of Government Assistance (IAS 20)
 Definition of Terms
 Government assistance – is action by government designed to provide an economic benefit specific to an
entity or range of entities qualifying under certain criteria.
 Government grants – are assistance by government in the form of transfers of resources to an entity in
return for past or future compliance with certain conditions relating to the operating activities of the entity.
 Grants related to assets – are government grants whose primary condition is that an entity qualifying for
them should purchase, construct or otherwise acquire long-term assets.
 Grants related to income – are government grants other than those related to assets.
 Forgivable loans – are loans which the lender undertakes to waive repayment of under certain prescribed
conditions.
 Classification of Government Grants
1. Grants related to assets
2. Grants related to income
 Recognition
 A government grant is recognized only when there is reasonable assurance that
a. The entity will comply with any conditions attached to the grant; and
b. The grant will be received
 Receipt of a grant does not of itself provide conclusive evidence that the conditions attaching to the grant
have been or will be fulfilled.
 The grant is recognized as income over the period necessary to match them with the related costs, for
which they are intended to compensate, on a systematic basis.
 Thus grants in recognition of specific expenses are recognized in profit or loss in the same period as the
relevant expenses.
 Grants related to depreciable assets are usually recognized in profit or loss over the periods and in the
proportions in which depreciation expense on those assets is recognized.
 Grants related to non-depreciable assets may also require the fulfilment of certain obligations and would
then be recognized in profit or loss over the periods that bear the cost of meeting the obligations.
 A grant receivable as compensation for costs already incurred or for immediate financial support, with no
future related costs, should be recognized as income in the period in which it is receivable.
 Grants are sometimes received as part of a package of financial or fiscal aids to which a number of
conditions are attached. It may be appropriate to allocate part of a grant on one basis and part on another.

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 Measurement
 All government grants shall be measured at fair value of the grants received or receivable.
 A government grant may take the form of a transfer of a non-monetary asset. In these circumstances it is
usual to assess the fair value of the non-monetary asset and to account for both grant and asset at that fair
value. An alternative course that is sometimes followed is to record both asset and grant at a nominal
amount.
 Presentation
 A grant relating to assets may be presented in one of two ways
1. Deferred income
2. Deduction from the asset's carrying amount
 A grant relating to income may be reported separately as
1. Other income
2. Deduction from the related expense.
 Repayment of Government Grants
 If a grant becomes repayable, it should be treated as a change in estimate.
 Where the original grant related to income:
A. The repayment should be applied first against any related unamortized deferred credit, and
B. Any excess should be dealt with as an expense.
C. Where the original grant related to an asset
a. The repayment should be treated as increasing the carrying amount of the asset or reducing the
deferred income balance.
b. The cumulative depreciation which would have been charged had the grant not been received should
be charged as an expense.
 Disclosure of Government Grants
1. Accounting policy adopted for grants, including method of balance sheet presentation.
2. Nature and extent of grants recognized in the financial statements.
3. Unfulfilled conditions and contingencies attaching to recognized grants.
 Government Assistance
 Excluded from the definition of government grants are certain forms of government assistance which:
a. Cannot reasonably have a value placed upon them; and
b. Transactions with government which cannot be distinguished from the normal trading transactions of
the entity.
 Examples of assistance:
a. Free technical or marketing advice
b. Provision of guarantees.
c. Government procurement policy that is responsible for a portion of the entity’s sales.
 The significance of the benefit in the above examples may be such that disclosure of the nature, extent
and duration of the assistance is necessary in order that the financial statements may not be misleading.
 Government assistance for the purpose of this Standard does not include benefits provided only indirectly
through action affecting general trading conditions, such as:
a. Provision of infrastructure by improvement to the general transport and communication network
b. Supply of improved facilities such as irrigation or water reticulation which is available on an ongoing
indeterminate basis for the benefit of an entire local community.
c. Imposition of trading constraints on competitors
 Difference between IFRS for SMEs and Full IFRS
Full IFRS IFRS for SMEs
Accounting model depends on whether it relates A different model is applied for the accounting of
to expenses and assets. government grants based on future performance
Grants related to asset may be deducted from No provision that grants may be deducted from
the carrying amount of the asset. the carrying amount of the asset.
Accounting policy must be disclosed Accounting policy disclosure is not required
 Illustration: Government Grants, Government Assistance, N/A
a. Subsidies received from the national government to be used exclusively for the construction of flood control
facility.
b. Technical feasibility advice provided by DOST as support to the IT companies built in Visayan region.
c. Guarantee provided by BSP to rural banks engaged in international financing activities.
d. Road improvements made by DPWH that results in the increase of the fair values of the companies real
properties.
e. Licensing agreement gratuitously provided by the national government for mining companies for the
exclusive rights to conduct operation in Benguet for 10 years.
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f. Immediate financial assistance provided to private hospitals by LGUs as aid for the aftermath of a calamity.

III. Investment Property (IAS 40)

 Definition of Terms
 Investment property – A property (land or a building or part of a building or both) held (by the owner or by
the lessee under a finance lease) to earn rentals or for capital appreciation or both, rather than for:
a. Use in the production or supply of goods or services or for administrative purposes (IAS 16)
b. Sale in the ordinary course of business. (IAS 2)
 Owner-occupied property – A property held (by the owner or by the lessee as a right-of-use asset) for use in
the production or supply of goods or services or for administrative purposes.
 Illustration: Identify the investment property
a. Land held for long-term capital appreciation
b. Land held for a currently undetermined future use
c. Property that is leased to another entity under a finance lease
d. Property intended for sale in the ordinary course of business or in the process of construction or
development for such sale
e. Building leased out under an operating lease
f. Owner-occupied property
g. Vacant building held to be leased out under an operating lease
h. Property that is being constructed or developed for future use as investment property
 Initial measurement
 Investment property is initially measured at cost, including transaction costs.
 Such cost should not include start-up costs, abnormal waste, or initial operating losses incurred before the
investment property achieves the planned level of occupancy.
 Measurement subsequent to initial recognition
1. Fair value model
 Investment property is remeasured at fair value, which is the amount for which the property could be
exchanged between knowledgeable, willing parties in an arm's length transaction.
 Gains or losses arising from changes in the fair value of investment property must be included in profit
or loss for the period in which it arises.
2. Cost model
a. After initial recognition, an entity that chooses the cost model shall measure investment property:
a. In accordance with IFRS 5 if it meets the criteria to be classified as held for sale.
b. In accordance with IFRS 16 if it is held by a lessee as a right-of-use asset and is not held for sale in
accordance with IFRS 5.
c. In accordance with the requirements in IAS 16 for the cost model in all other cases (cost less
accumulated depreciation and less accumulated impairment losses).
 Transfers to or from investment property classification
 Transfers to, or from, investment property should only be made when there is a change in use, evidenced
by one or more of the following (non-exhaustive list):
a. Commencement of owner-occupation (transfer from investment property to owner-occupied
property)
b. Commencement of development with a view to sale (transfer from investment property to
inventories)
c. End of owner-occupation (transfer from owner-occupied property to investment property)
d. Commencement of an operating lease to another party (transfer from inventories to investment
property)
e. End of construction or development (transfer from property in the course of construction/
development to investment property)
 Accounting for transfers between categories
a. For a transfer from investment property carried at fair value to owner-occupied property or
inventories, the fair value at the change of use is the 'cost' of the property under its new classification.
b. For a transfer from owner-occupied property to investment property carried at fair value, IAS 16
should be applied up to the date of reclassification. Any difference arising between the carrying
amount under IAS 16 at that date and the fair value is dealt with as a revaluation under IAS 16.
c. For a transfer from inventories to investment property at fair value, any difference between the fair
value at the date of transfer and its previous carrying amount should be recognized in profit or loss.
d. When an entity completes construction/development of an investment property that will be carried
at fair value, any difference between the fair value at the date of transfer and the previous carrying
amount should be recognized in profit or loss.

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e. When an entity uses the cost model for investment property, transfers between categories do not
change the carrying amount of the property transferred, and they do not change the cost of the
property for measurement or disclosure purposes.
 Disposal
 An investment property should be derecognized on disposal or when the investment property is
permanently withdrawn from use and no future economic benefits are expected from its disposal.
 The gain or loss on disposal should be calculated as the difference between the net disposal proceeds and
the carrying amount of the asset and should be recognized in the income statement.
 Compensation from third parties is recognized when it becomes receivable.

IV. Borrowing Costs (IAS 23)

 Definition of Terms
 Borrowing costs – Interest and other costs that an entity incurs in connection with the borrowing of funds.
 Capitalization – Recognizing a cost as part of the cost of an asset.
 Qualifying asset – An asset that necessarily takes a substantial period of time to get ready for its intended
use or sale.
 Scope
 Borrowing cost may include:
a. Interest expense calculated by the effective interest method under IFRS 9
b. Finance charges in respect of finance leases recognized in accordance with IFRS 16 Leases; and
c. Exchange differences arising from foreign currency borrowings to the extent that they are regarded
as an adjustment to interest costs.
d. This standard does not deal with the actual or imputed cost of equity, including any preferred
capital not classified as a liability pursuant to IAS 32.
 A qualifying asset could be
a. Property, plant, and equipment and investment property during the construction period
b. Intangible assets during the development period
c. "made-to-order" inventories.
 Assets that would otherwise be qualifying assets are excluded from the scope of IAS 23:
a. Qualifying assets measured at fair value, such as biological assets accounted for under IAS 41 Agricul-
ture.
b. Inventories that are manufactured, or otherwise produced, in large quantities on a repetitive basis and
that take a substantial period to get ready for sale (for example, maturing whisky)
c. Assets that are ready for their intended use or sale when acquired.
 Recognition
 Borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying
asset form part of the cost of that asset and, therefore, should be capitalized. Other borrowing costs are
recognized as an expense.
 Measurement
 Where funds are borrowed specifically (specific borrowing)
 Borrowing costs eligible for capitalization are the actual costs incurred less any income earned on the
temporary investment of such borrowings.
 Where funds are part of a general pool (general borrowing)
 Borrowing cost eligible for capitalization is determined by applying a capitalization rate to the expendi-
ture on that asset.
 The capitalization rate will be the weighted average of the borrowing costs applicable to the general
pool.
 The amount of borrowing costs that an entity capitalizes during a period shall not exceed the amount
of borrowing costs it incurred during that period.
 Income earned on the temporary investment of such borrowings is not deducted from borrowing cost.
 Capitalization
 Commencement of capitalization
 Capitalization should commence when expenditures are being incurred, borrowing costs are being
incurred and activities that are necessary to prepare the asset for its intended use or sale are in
progress.
 Suspension of capitalization
 Capitalization should be suspended during periods in which active development is interrupted.
 Cessation of capitalization

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 Capitalization should cease when substantially all of the activities necessary to prepare the asset for its
intended use or sale are complete.
 If only minor modifications are outstanding, this indicates that substantially all of the activities are
complete.
 Where construction is completed in stages, which can be used while construction of the other parts
continues, capitalization of attributable borrowing costs should cease when substantially all of the ac-
tivities necessary to prepare that part for its intended use or sale are complete.
 Disclosure
 Amount of borrowing cost capitalized during the period
 Capitalization rate used to determine the amount of borrowing cost eligible for capitalization

Multiple Choice Questions

1. Defined by IAS 41 as the harvested produce of the entity’s biological assets.
A. Agricultural activity B. Agricultural produce C. Harvested crops D. Agricultural harvest
2. Defined by IAS 41 as the process that comprises of growth, degeneration, production, and procreation that cause
qualitative or quantitative changes in a biological asset.
A. Biological transformation C. Agricultural transformation
B. Biological process D. Agricultural process
3. Defined by IAS 41 as a living animal or plant.
A. Agricultural assets B. Agricultural produce C. Biological assets D. Biological produce
4. Bearer plant is a living plant that: (choose the exception)
A. Is used in the production or supply of agricultural produce.
B. Is expected to bear produce for more than one period.
C. Has a remote likelihood of being sold as agricultural produce, except for incidental scrap sales.
D. Is included within the scope of IAS 41.
5. Which of the following is most likely to be classified as biological assets.
A. Sugar B. Wool C. Fruit-bearing trees D. All of the foregoing
6. Biological assets are measured at
A. Fair value C. Fair value less cost to sell at point of harvest
B. Fair value less cost to sell D. Lower of cost and net realizable value
7. Subsequent to point of harvest, agricultural produced are measured at
A. Fair value C. Fair value less cost to sell at point of harvest
B. Fair value less cost to sell D. Lower of cost and net realizable value
8. Which of the following is incorrect regarding gains and losses on subsequent measurement of biological assets and
agricultural produce?
A. A gain or loss on initial recognition of agricultural produce at fair value less costs to sell are included in profit or
loss for the period in which it arises.
B. Changes in fair value less costs to sell of biological assets during a period, are included in profit or loss.
C. Separate disclosure of the two components of change in fair value of biological assets as part physical change
and part price change is required.
D. None of the foregoing
9. Ordinarily, biological assets are classified as
A. Separate line item of noncurrent assets C. Separate line item of current
B. Part of plant, property & equipment D. Part of inventories
10. Which of the following shall be included as part of biological assets?
A. Agricultural land
B. Biological assets (other than bearer plants) that are physically attached to agricultural land
C. Intangible assets relating to agricultural activity
D. All of the foregoing
11. Conditional government grants received in respect of biological assets are recognized in profit or loss
A. When the grant becomes receivable .
B. When the conditions have been met.
C. In the proportions in which depreciation expense on those assets is recognized.
D. Any of the foregoing.
12. An entity shall disclose the following relating to government grants in respect of biological assets, except
A. Accounting policy adopted for grants, including method of balance sheet presentation.
B. Nature and extent of grants recognized in the financial statements.
C. Unfulfilled conditions and contingencies attaching to recognized grants.
D. Significant decreases expected in the level of grants.
13. Defined by IAS 20 as actions by government designed to provide an economic benefit specific to an entity or range
of entities qualifying under certain criteria.
A. Government grants C. Government subsidy
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B. Government assistance D. Government subventions
14. Defined by IAS 20 as assistance by government in the form of transfers of resources to an entity in return for past
or future compliance with certain conditions relating to the operating activities of the entity.
A. Government grants C. Government subsidy
B. Government assistance D. Government subventions
15. Government grants whose primary condition is that an entity qualifying for them should purchase, construct or
otherwise acquire long-term assets.
A. Government grants C. Grants related to income
B. Government assistance D. Grants related to assets
16. Government grant shall be recognized when there is reasonable assurance that
A. The entity will comply with the conditions attaching to the grant and that the grant was constructively
received.
B. The entity will comply with the conditions attaching to the grant and that the grant will be received.
C. The entity will comply with the conditions attaching to the grant.
D. The grant was constructively received.
17. Government grant is recognized as income over the period necessary to match them with the related costs, for
which they are intended to compensate, on a systematic basis. Government grants may be recognized as follows,
except
A. The grants in recognition of specific expenses are recognized in profit or loss in the same period as the relevant
expenses.
B. A grant receivable as compensation for costs already incurred or for immediate financial support, with no
future related costs, should be recognized as prior period adjustment in the retained earnings.
C. Grants related to non-depreciable assets may also require the fulfilment of certain obligations and would then
be recognized in profit or loss over the periods that bear the cost of meeting the obligations.
D. Grants related to depreciable assets are usually recognized in profit or loss over the periods and in the
proportions in which depreciation expense on those assets is recognized.
18. Grant related to asset may be classified in the financial statement as follows, except
A. Setting the grant as deferred income
B. Deducting the grant in arriving at the carrying amount of the asset.
C. Deducting the grant from the related expense.
D. None of the foregoing.
19. Repayment of grant related to income shall be
A. Expensed immediately in the period the grant becomes repayable.
B. Treated as increasing the carrying amount of the asset.
C. Applied first against any related unamortized deferred income and any excess shall be recognized as an
expense.
D. Any of the foregoing.
20. Government assistance does not include
A. Free technical or marketing advice
B. Provision of infrastructure by improvement to the general transport and communication network
C. Provision of guarantees
D. Government procurement policy that is responsible for a portion of the entity’s sales
21. Disclosure requirements for government grants do not include
A. The name of the government agency that gave the grant and the date when the grant was received.
B. Unfulfilled conditions and contingencies attached to the recognized grant.
C. Accounting policy adopted for grants, including method of balance sheet presentation.
D. Nature and extent of grants recognized in the financial statements.
22. If an entity receives a non-monetary asset as a grant, this is accounted for at
A. Market value B. Present value C. Fair value D. Discounted value
23. If a grant must be repaid it is
A. An error C. A revision of an accounting estimate
B. A revision of an accounting policy D. A new transaction
24. Which of the following is not covered by IAS 20?
A. Tax breaks B. Employment grants C. Subsidized loans D. Forgivable loans
25. Which of the following is not a correct treatment of government grants related to income?
A. Present as a separate credit under a general heading (eg. ‘Other income’)
B. Deduct from the related expense
C. Deduct from the cost of the asset
D. None of the foregoing
26. Which of the following is not a correct treatment of government grants related to an asset?
A. Deferred income
B. Credit to income in period received
C. Deducting the grant from the carrying amount of the asset
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D. None of the foregoing
27. Which of the following disclosures is not a requirement of IAS 20?
A. Accounting policy adopted for grants
B. Nature and extent of grants recognized in the financial statements
C. Current grant applications in process
D. Unfulfilled conditions, contingencies attaching to recognized grants
28. A property held (by the owner or by the lessee as a right-of-use asset) for use in the production or supply of goods
or services or for administrative purposes.
A. Owner-occupied property C. Property, plant and equipment
B. Investment property D. Right-of-use asset
29. The following are investment properties, except
A. Land held for a currently undetermined future use.
B. Land held for long-term capital appreciation.
C. Property leased to another entity under a finance lease.
D. None of the foregoing.
30. Initial measurement of investment property is
A. Cost C. Cost plus transaction costs and start-up costs
B. Cost plus transaction costs D. Cost minus transaction costs
31. Subsequent measurement of investment property does not include
A. Cost model C. Revaluation model
B. Fair value model D. None of the foregoing
32. If an owner-occupied property is transferred to investment property carried at fair value, IAS 16 should be applied
up to the date of reclassification. Any difference arising between the carrying amount under IAS 16 at that date and
the fair value is dealt with as a
A. Revaluation C. Gain or loss for the period
B. Change in accounting estimate D. Impairment
33. Transfer from inventories to investment property at fair value, any difference between the fair value at the date of
transfer and its previous carrying amount should be recognized
A. As revaluation C. Directly to retained earnings
B. In other comprehensive income D. In profit or loss
34. If an entity uses part of a building for their own use, and rents the remainder. How should this be treated?
B. All as investment property under IAS 40 C. All under IAS 16
C. Account for separately IAS - 16 and IAS - 40 D. None of these
35. A parent leases an office building to a subsidiary. In which financial statements will the property appear as investment
property?
B. Parent company C. Consolidated financial statements
C. Subsidiary D. Both parent and subsidiary
36. Which of the following is not an example of investment property?
A. Land held for undetermined future use
B. Property leased to another entity under a finance lease
C. Property leased to another entity under an operating lease
D. Property being constructed for future use as an investment property
37. If an entity wishes to change from a cost model to fair value model under IAS 40 – Investment Property, when may
it do so?
A. When a change will result in a more appropriate presentation
B. When the board of directors approves a change
C. When the value of the assets will improve with a revised model
D. When the market for these properties is fluctuation
38. Which of the following is not a transfer from or to investment property under IAS 40?
A. Commencement of owner occupation
B. Commencement of development with a view to sale
C. Transfer from undetermined use to an operating lease
D. End of construction of development
39. Under IAS 40 – Investment Property, where should a gain or loss on disposal be recognized?
A. Income Statement C. Statement of Changes in Equity
B. Statement of Financial Position D. None of these
40. An investment property should initially be measured at
A. Market value B. Fair value C. Net realizable value D. Cost
41. Defined by IAS 23 as Interest and other costs that an entity incurs in connection with the borrowing of funds.
A. Finance costs B. Borrowing cost C. Interest cost D. Costs of debt
42. Defined by IAS 23 as an asset that necessarily takes a substantial period of time to get ready for its intended use or
sale.
A. Capital asset B. Long-term asset C. Qualifying asset D. Capital expenditure
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43. For purposes of capitalization of borrowing costs, which of the following is least likely to be considered as
qualifying asset?
A. Biological asset B. Intangible asset C. Manufacturing plant D. Power generation facility
44. IAS 23 does not require capitalization of borrowing cost relating to the following assets, except
A. Assets measured at fair value
B. Inventories manufactured in large quantities on repetitive basis even if they take substantial period of time to
get ready for sale.
C. Noncurrent assets that are ready for their intended use or sale when acquired.
D. Real properties classified as investment properties
45. Under IAS 23, borrowing costs incurred in acquiring, producing or constructing a qualifying asset are
A. Expensed in the period incurred.
B. Capitalized as part of the cost of the qualifying asset.
C. Expensed as benchmark treatment; capitalized as allowed alternative treatment.
D. Capitalized as benchmark treatment; expensed as allowed alternative treatment.
46. Investment income from the temporary investment of borrowing attributable to the acquisition, construction or
production of a qualifying asset is
A. Deducted from the borrowing cost related to both specific and general borrowing.
B. Deducted from the borrowing cost related to specific borrowing.
C. Deducted from the borrowing cost related to general borrowing.
D. Recognized as investment income for both specific and general borrowing.
47. If a qualifying asset is financed by general borrowing, the borrowing cost capitalized is equal to
A. Actual borrowing costs incurred during the construction period.
B. Total expenditure on the qualifying asset multiplied by a capitalization rate.
C. Average expenditures on the qualifying asset multiplied by a capitalization rate or actual borrowing costs,
whichever is higher.
D. Average expenditures on the qualifying asset multiplied by a capitalization rate or actual borrowing costs,
whichever is lower.
48. Which of the following is not part of the disclosure requirement under IAS 23?
A. Borrowing cost capitalized during the period.
B. Capitalization rate used to determine the borrowing cost to be capitalized.
C. Amount of specific and general borrowings used to finance the acquisition, construction or production of a
qualifying asset.
D. None of the foregoing.
49. Which of the following is not a “qualifying asset” under IAS 23 – Borrowing Costs?
A. Mass produced inventory C. Made to order inventory
B. Manufacturing plants D. Investment property
50. Which of the following is not a condition to commence capitalization of borrowing costs?
A. Expenditures are being incurred
B. Borrowing costs are being incurred
C. Repayment of borrowings has commenced
D. Activities to produce the asset for its intended use or sale have commenced
51. Which of the following is not considered a “borrowing cost” under IAS 23?
A. Interest expense calculated by the effective interest method under IAS 39
B. Finance charges in respect of finance leases recognised in accordance with IAS 17 Leases
C. Exchange differences arising from foreign currency borrowings to the extent that they are regarded as an
adjustment to interest costs
D. Principal repayments on a loan for property, plant and equipment
52. What is the correct treatment for all eligible borrowing costs under IAS 23?
A. Expensed B. Capitalized C. Liability D. None of these
53. When activities to prepare an asset for its sale or use are suspended, borrowing costs must be
A. Capitalized B. Charged to equity C. Ignored D. Expensed

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“You, Lord, give perfect peace to those who keep their purpose firm and put their trust in you.”
Isaiah 26:3

“Believe in yourself and all that you are. Know that there is something inside you that is
greater than any obstacle.” Christian D. Larson.

Module 9 Page 9 of 9