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

Under AS 16, borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset are to be treated in which manner?

Borrowing costs directly attributable to acquiring, constructing or producing a qualifying asset are capitalised as part of that asset's cost under AS 16. Only the remaining borrowing costs, which are not so attributable, are recognised as an expense in the period in which they are incurred.

  1. ACapitalised as part of the cost of that assetCorrect
  2. BRecognised as an expense in the period incurred
  3. CDeferred and written off over five years
  4. DShown as a reduction from owners' equity

Explanation

AS 16 requires borrowing costs directly attributable to a qualifying asset to be capitalised as part of its cost. Only other borrowing costs are expensed in the period incurred. Expensing the attributable costs would ignore this requirement.

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