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CMA Intermediate · Financial Accounting · Borrowing Costs (AS 16)

A company is constructing a plant. Which of the following events would justify suspending capitalisation of borrowing costs under AS 16?

Capitalisation is suspended when active development is interrupted for an extended period, such as a prolonged stoppage from a decision to defer the project. Costs of holding a partly completed asset do not qualify. Technical work, necessary delays and commonly occurring high water levels do not cause suspension.

  1. ASubstantial technical and administrative work is being carried out during a lull in physical construction
  2. BAn extended period in which active development is interrupted, such as work stopped for a prolonged period owing to a management decision to defer the projectCorrect
  3. CA short delay in construction caused by a necessary part of the process of getting the asset ready
  4. DHigh water levels delaying construction of a bridge, where such levels are common in that region during construction

Explanation

Capitalisation is suspended during extended periods in which active development is interrupted, as these are costs of holding a partially completed asset. Substantial technical or administrative work, necessary temporary delays and normal seasonal high water levels do not trigger suspension.

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