Chapter 29 IAS 2 Inventories
Chapter 30 IFRS 10
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IAS -23 Borrowing Cost
Definition Borrowing costs are defined as 'interest and other costs that an entity incurs in connection
with the borrowing of fund
Qualifying asset
A qualifying asset as one that takes a
substantial period of time to get ready for its
intended use or sale.
Accounting Treatment
Charge to P&L account as finance cost capitalized as a part of asset cost
Recognition Criteria to capitalize borrowing cost
Interest must be directly attributable for the
acquisition, construction or production of a
qualifying asset.
Capitalization period
Capitalization should commence Suspension period Cessation date
When Period in which active Capitalization should cease when
expenditure is being development is interrupted
incurred.
borrowing costs are being substantially all the activities that
incurred. are necessary to prepare for its
activity that are necessary P&L intended use or sale are complete.
to prepare the asset for its
intended use or sale are in
progress.
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Interest amount to be capitalized
Specific borrowing/loan General borrowing/loan
Loan whose specific purpose is for only qualifying
asset Loan that can be used for different purpose e.g.
Tax payments, payments, building constructions
etc.
Interest is due to qualifying asset so it will be
capitalized to the assets cost Expense on qualifying asset x weighted avg interest
rate x time ratio
Interest expense on loan xx
Less
Temporary interest income on xx
Surplus fund
xxx
weighted avg interest rate
loan amount /total loan amount x % age of loan
Disclosure Requirement
Amount of borrowing costs capitalized during the period
Capitalization rate.
IFRS – 10 Definition of Control
All three must be met to be eligible for control definition
b) Exposure/Rights to variable c) Ability to use power (to
a) Power over Investee
return effect return)
Existing rights that provide
ability to direct the relevant
Relevant activities: Any activity that effects the returns
activities of investee.
(business activities). Asset sale /purchase, investing financing
decisions etc.
Existing rights:
With majority share holdings (more than 50%)
Without majority shareholdings (less than 50%)
Defacto Control
Control without majority shareholdings (less than 50%).
1. Contract with other investor:
ABC ltd owns 45% of D ltd
C ltd owns 12% of D ltd Agreement
ABC ltd is a parent
D LTD (group structure)
Parent 45%
NCI 55%
100%
2. Ability to appoint / remove majority directors
3. Potential shares:
e.g.: - Convertible loans
Shares options
AB ltd 45% C ltd Three features:
i. Currently exercisable
AB ltd also hold ii. Favorable to exercise
convertible loans for iii. Ability to exercise
12% more shares.
4. Other factors:
i. Relative Shareholding
ii. AGM attendance
iii. Dispersion of shareholding
A ltd 44% C ltd
AGM 60% attendance:
All have holding of less than 1%
All are widely dispersed.
Consolidation Procedure
Line by line addition. (100% line by line Addition)
Intra group balances eliminate.
NCI presentation as equity.
Parent and Subsidiary must have same/uniform accounting policies and reporting date. If there
is a difference of more than 3 months in Parent and Subsidiary reporting date then Items of
those months should not account for of subsidiary.
Exception/Exemption for not preparing
Consolidated Financial Statement
Criteria:
Its shares/securities are not traded on stock exchange (not a public listed) nor in the process of
listing.
It is a subsidiary of another entity (intermediate parent) & its ultimate parent is preparing
consolidated financial statements.
If other owners I.e. NCI have no objection on not Preparing Consolidated Financial Statements.
Parent want to exclude
one subsidiary from Not Possible
consolidation.
Disposal of subsidiary
Consolidations Books
Dr. Cash xx
Dr. NCI xx
Dr./Cr. P&loss(Bal) xx
Cr. Goodwill xx
Cr. Net Assets xx
Consolidated income statement till date of control.
CSOFP (No assets /liabilities of
subsidiary, No NCI, No
Goodwill)
252. Alderminster Co acquired a 70% holding in Bidford Co 1 January 20X4 for $600.000. At that date
the fair value of the net assets of Bidford Co was $700,000. Alderminster Co measures non-controlling
interest at its share of net assets.
On 31 December 20X6 Alderminster Co sold all shares in Bidford Co for $950,000. At that date the fair
value of Bidford Co's net assets was $850,000. Goodwill was not impaired.
What was the profit or loss on disposal to be recognised in the consolidated financial statements of
Alderminster Co?
▼profit/loss
Picklist
$135,000
$200,000
$245,000
$355,000
Disposal of subsidiary
Parent Individual Books
Investment in subsidiary as a Single asset.
IAS-27
IFRS-9 IAS-28
At Cost
(FVTPL, FVTOCI) Equity Method
Disposal entry: -
Dr. Cash xx
Dr./Cr. Loss/profit (Bal) xx
Cr. Inv. In sub. Asset C.V xx
251. On 1 January 20X3 Westbridge Co acquired all of Brookfield Co's 100,000 $1 shares for $300,000.
The goodwill acquired in the business combination was $40,000, of which 50% had been written off as
impaired by 31 December 20X5. On 31 December 20X5 Westbridge Co sold all of Brookfield's shares for
$450,000 when Brookfield had retained earnings of $185,000.
What is the profit on disposal that should be included in the INDIVIDUAL ENTITY financial statements
of Westbridge Co?
