Abstract
The accounting treatment of the costs incurred on borrowings obtained to finance asset acquisitions achieved prominence in the UK through the growth of the large property companies in the 1950s and 1960s. However, as a result of the House of Lords decision in the Chancery Lane case1 in 1966, the accounting treatment of property company development interest was frequently governed by the achievement of a particular tax result, rather than being based on sound accounting principles.
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References
Chancery Lane Safe Deposit and Offices Co. Ltd. v. I.R.C. [1966] A.C. 85.
Fitzleet Estates Ltd. and Others v. Cherry (ILM. Inspector of Taxes) [1977] 51 T.C., 708.
Ibid., at 718.
Taxes Act 1970, ss 248(5)(a), 269 as amended by Finance Act 1981, s 38 (now Taxes Act 1988, s 338(3)).
CA 85, Sch. 4, para. 26(3)(b).
The moratorium was imposed on November 14, 1974 by Accounting Series Release No. 163, Capitalization of Interest by Companies Other Than Public Utilities. Washington D.C.: Securities and Exchange Commission, 1974.
‘Public utilities’ was defined to include electric, gas, water, and telephone utilities.
SFAS 34, Capitalisation of Interest Cost, FASB, October 1979. For a more detailed discussion of the background to SFAS 34, see Appendix A to the statement.
For a full understanding of the reasons for the dissenting vote, see SFAS 34 for the text of the statement issued by the dissenting members of the FASB.
IAS 23, Capitalisation of Borrowing Costs, IASC, March 1984, para. 6.
Ibid., para. 7.
SFAS 34, para. 36.
Ibid., para. 38.
Ibid., text of the statement issued by the dissenting members of the FASB.
Ibid., para. 54.
Ibid., para. 49.
Ibid., para. 40.
Ibid., Appendix B, para 49.
SSAP 9, Stocks and long-term contracts, Issued May 1975, Revised September 1988, Appendix 1, para. 21.
CA 85, Sch. 4, para. 26(3).
See J Sainsbury plc, 1991 Annual Report & Accounts, p. 39.
The Council of The Stock Exchange, Admission of Securities to Listing, Section 5, Chapter 2, para. 21(g).
The Council of The Stock Exchange, The Stock Exchange Unlisted Securities Market, General Undertaking, para. 10(g).
ED 51, Accounting for fixed assets and revaluations, ASC, May 1990, para. 73.
Ibid., para. 52.
Ibid., para. 74.
Ibid., para. 99.
SFAS 34, para. 7.
SFAS 58, Capitalization of Interest Cost in Financial Statements That Include Investments Accounted for by the Equity Method, FASB, April 1982.
SFAS 62, Capitalization of Interest Cost in Situations Involving Certain Tax-Exempt Borrowings and Certain Gifts and Grants, FASB, June 1982.
SFAS 34, para. 9.
Ibid.
SFAS 58, para. 5.
SFAS 34, para. 10.
Ibid.
Ibid.
SFAS 58, para. 6.
Ibid.
SFAS 34, para. 11.
Ibid., paras. 12–15.
Ibid., para. 15.
Ibid., para. 16.
Ibid., paras. 17 and 18.
Ibid., para. 18.
Ibid., para. 19.
Ibid., para. 21.
IAS 23, para. 21.
Ibid., para. 10.
Ibid., para. 24.
Ibid., para. 11.
Ibid., para. 15.
Ibid., para. 27.
Ibid., para. 16.
Ibid., para. 12.
Ibid., para. 28.
E32, Comparability of Financial Statements, January 1989, para. 188.
IASC, Statement of Intent: Comparability of Financial Statements, July 1990.
E39, Capitalisation of Borrowing Costs, August 1991.
Ibid., para. 6.
Ibid., para. 3.
IASC, Insight, October 1991, p. 10.
E39, para. 5.
IAS 23, para. 11.
IASC, Insight, October 1991, p. 10.
E39, para. 5.
Ibid., para. 11.
Ibid., paras. 12–18.
Ibid., para. 12.
Ibid.
IAS 23, para. 23.
IASC, Insight, October 1991, p. 11.
Ibid.
E39, para. 19.
Ibid., para. 22.
IASC, Insight, October 1991, p. 11.
IASC, Update, June 1992.
CA 85, Sch. 4, paras. 17, 22 and 26(3).
SFAS 34, para. 10.
Ibid., paras. 10, 45 and 46.
Ibid., para. 10.
SSAP 9, para. 19(c).
E39, para. 5.
Ibid., para. 11.
CA 85, Sch. 4, para. 26(3)(b).
E39, para. 11.
Ibid.
ED 51, para. 69(a).
E39, para. 16.
SFAS 34, para. 18.
IAS 23, para. 26, ED 51, para. 69(b).
E39, para. 18.
ED 51, paras. 12 and 69(c).
IAS 23, para. 25; E39, para. 13.
E39, para. 14.
ED 51, paras. 13, 14 and 68.
See for example Rickwood, Accounting treatment of capitalised interest, pp. 20–22 and G.A. Milnes and D.R. Tillett, Property Company Accounts, pp. 25–30.
SFAS 62, para. 3.
IAS 23, para. 16.
SFAS 34, para. 12.
G.A. Milnes and D.R. Tillett, op. cit., p. 31.
Admission of Securities to Listing, Section 5,’ Chapter 2, para. 21(g).
SSAP 20, Foreign currency translation, April 1983, para. 68.
CA 85, Sch. 4, para. 26(2).
SFAS 34, para. 9(a).
CA 85, Sch. 4, para. 26(3).
Ibid., para. 8.
Ibid., para. 53(2).
Ibid., para. 26(3).
Admission of Securities to Listing, Section 5, Chapter 2, para. 21(g).
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Davies, M., Paterson, R., Wilson, A. (1992). Capitalisation of borrowing costs. In: UK Gaap. Palgrave Macmillan, London. https://doi.org/10.1007/978-1-349-12998-0_10
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