Abstract
A point of contention in determining the initial measurement of a tangible fixed asset is whether borrowing costs incurred during the period of construction of an asset should or should not be capitalised. This issue was referred to in company law for the first time in 1981, with the Companies Act 1981 permitting the inclusion of interest in the production cost of an asset.1
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References
CA 85, Sch. 4, para. 26(3)(b).
ASB Discussion Paper, Measurement of tangible fixed assets, October 1996.
The moratorium was imposed on November 14, 1974 by Accounting Series Release No. 163, Capitalisation 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.
IAS 23 (Original), Capitalisation of Borrowing Costs, IASC, March 1984, paras. 21–27.
IAS 23, Borrowing Costs, IASC, Revised 1993, para. 8.
ASB Discussion Paper, Measurement of tangible fixed assets, para. 1.17.
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 (Original), para. 6; ASB Discussion Paper, Measurement of tangible fixed assets, para. 1.15.
IAS 23 (Original), para. 7; ASB Discussion Paper, Measurement of tangible fixed assets, para. 1.16.
SFAS 34, para. 36.
ASB Discussion Paper, Measurement of tangible fixed assets, para. 1.17.
SFAS 34, 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.
ED 51, Accounting for fixed assets and revaluations, ASC, May 1990, para. 18.
ASB Discussion Paper, Measurement of tangible fixed assets, para. 1.17.
Ibid.
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, 1997 Annual Report and Accounts, p. 11.
The Listing Rules, London Stock Exchange, Chapter 12, para. 12.43(c).
SFAS 34, para. 7.
SFAS 58, Capitalisation of Interest Cost in Financial Statements That Include Investments Accounted for by the Equity Method, FASB, April 1982.
SFAS 62, Capitalisation 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 (Original), para. 21.
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.
IAS 23, Borrowing Costs, IASC, Revised 1993, paras. 7 and 8.
Ibid., paras. 10–28.
Ibid., para. 4.
IASC, Insight, October 1991, p. 10.
IAS 23, para. 6.
Ibid., para. 4.
Ibid., para. 5.
Ibid., para. 11.
Ibid., para. 15.
Ibid., para. 17.
Ibid., para. 20.
Ibid., para. 22.
Ibid., paras. 23 and 24.
Ibid., para. 25.
Ibid., para. 27.
Ibid., para. 29.
CA 85, Sch. 4, paras. 17, 22 and 26(3).
SFAS 34, para. 10.
Ibid., paras. 10, 45 and 46.
Ibid., para. 10.
IAS 23, para. 6.
Ibid., para. 22.
CA 85, Sch. 4, para. 26(3)(b).
IAS 23, para. 20(c)
Ibid., para. 22.
Ibid., para. 26.
SFAS 34, para. 58.
IAS 23, paras. 27 and 28.
SFAS 34, para. 18.
IAS 23, para. 23; SFAS 34, para. 17.
IAS 23, para. 24; SFAS 34, para. 17.
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.
ASB Discussion Paper, Measurement of tangible fixed assets, para. 1.18.
Ibid., para. 1.19.
Ibid.
Ibid., para. 1.20.
Ibid., para. 1.21.
Ibid., para. 1.22.
IAS 23, para. 15.
Ibid., para. 16.
ASB Discussion Paper, Measurement of tangible fixed assets, para. 1.22; IAS 23, para. 17.
SFAS 62, para. 3.
G. A. Milnes and D. R. Tillett, op. cit., p. 31.
The Listing Rules, London Stock Exchange, Chapter 12, para. 12.43(c).
IAS 23, para. 30.
SSAP 20, Foreign currency translation, April 1983, para. 68.
IAS 23, para. 5(e).
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).
The Listing Rules, London Stock Exchange, Chapter 12, para. 12.43(c).
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© 1997 Ernst & Young
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Davies, M., Paterson, R., Wilson, A. (1997). Capitalisation of borrowing costs. In: UK GAAP. Palgrave Macmillan, London. https://doi.org/10.1007/978-1-349-13819-7_13
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