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| Old GAAP | FRS 102 | Further Comment On Differences |
| Borrowing Costs | Borrowing Costs (S.25) | |
| No specific standard dealing with borrowing costs. Limited guidance in FRS 15 which relates purely to tangible fixed assets.
|
Specific standard with a wide scope as it refers to qualifying assets. If it meets the definition of qualifying assets then it is within the scope of Section 25.
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Although there was no specific standard, borrowing costs would have been allowed to be capitalised in PPE under old GAAP and the rules for capitalisation were similar. Also if borrowing costs were necessarily incurred in producing stock which took a long time to mature/produce then such costs could have been capitalised under old GAAP. Therefore, although there was no specific standard dealing with borrowing costs, it is unlikely to cause differences on transition unless an option is taken to cease a capitalisation policy. |
| Policy choice to expense or capitalise qualifying borrowing costs. | Policy choice to expense or capitalise qualifying borrowing costs on qualifying assets. Change in policy must be adjusted retrospectively. Different policy can be applied to different classes of assets. | There are no differences.
Where an entity previously adopted a policy of capitalising borrowing costs under old GAAP and chooses to apply a policy of expensing borrowing costs under FRS 102 then a retrospective adjustment will need to be made on transition to derecognise all borrowing costs previously recognised. See attached an example of the transition adjustment required where this option is availed of (Example 99 – Change Of Policy On Transition). Where an entity adopts a policy of capitalising borrowing costs on transition and previous to that these were expensed no transition adjustment is required as Section 35.10(o) provides an exemption to commence a policy of capitalisation from the date of transition hence no retrospective adjustment is required. |
| Qualifying asset not defined.
|
A qualifying asset is an asset that necessarily takes a substantial period of time to complete for its intended use. | Section 25 defines what a qualifying asset is, whereas this was not defined under old GAAP. Therefore, under old GAAP, entities may have capitalised interest which may not be allowed under Section 25 as it may not meet the requirement in relation to the asset taking a substantial period of time to complete. Where an entity previously had a policy of capitalising borrowing costs and intends to continue under FRS 102 or adopts a policy on transition, then a review will need to be undertaken to ensure that any interest capitalised was on assets which necessarily took a substantial period of time to complete for its intended use. |
| No specific guidance on surplus investment income. | Surplus investment income should be netted against the interest cost capitalised.
|
Although no guidance was provided in old GAAP, the practice adopted under old GAAP is consistent with that which is stated in Section 25.
Entities should review the policy applied under old GAAP to ascertain whether this netting was carried out. |
| No guidance on exchange differences on borrowing costs.
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Borrowing costs include exchange differences arising from foreign currency borrowings to the extent that they are regarded as an adjustment to interest costs.
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Where an entity has previously adopted a policy of capitalising borrowing costs and the entity has borrowed in a currency other than its functional currency to construct/produce PPE/inventory, it should assess if the borrowing FX differences were capitalised.
In the event that it is material a transition adjustment will be required. Where an entity adopts a policy of capitalising borrowing costs on transition, an entity should ensure tax differences are capitalised since the date of transition. |
| Not applicable.
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Section 35.10; where a policy of capitalising borrowing costs is chosen for the first time on transition, the entity can elect to treat the date of transition to FRS 102 as the date that capitalisation commences. | Where this exemption is availed of, it should be disclosed in the financial statements. |
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