1. Advanced Financial Accounting
Lecture-32
IAS-23 & IAS-33
Borrowing Cost & EPS

2. Solution Amount of interest Loan-1 = 300,000x 6% = 18,000
Loan-2 = 200,000x 8%x9/12 = 12,000
Loan-3 = 150,000x 9%x6/12 = 6,750
36,750
Weighted average
Loan-1 = 300,000
Loan-2 = 200,000x9/12 = 150,000
Loan-3 = 150,000x6/12 = 75,000
525,000

3. Solution
Capitalization Rate
= 36,750 x 100 = 7%
525,000

4. Borrowing Cost Eligible for Capitalization
Jan 31 = 70,000 x 7.31% x 11/12 = 4,689
April 1 = 80,000 x 7.31% x 9/12 = 4,386
Dec 1 = 10,000 x 7.31% x 1/12 =
9,136

5. Question
MCQ Pvt. Limited has the following loans outstanding as at December 31st 2005
  Rs.
Loan – 6 % ,000
Loan – 8 % ,000
Loan 9 % ,000
All the three loans were brought forward from previous year. Neither loan is acquired during the year nor is paid.
The company spent following amounts on construction of an asset .
January 31, ,000
April , ,000
December 01, ,000
Calculate (I ) capitalization rate (ii ) borrowing cost eligible for capitalization .

6. Borrowing Cost Eligible for Capitalization
Jan 31 = 70,000 x 7% = 4,900 x 11/12 = 4,492
April 1 = 80,000 x 7% = 5,600 x 9/12 = 4,200
Dec 1 = 10,000 x 7% = 700 x 1/12 =
8,750

7. Total Borrowing Cost Total borrowing = 650,000
Amount of interest = 36,750
Revenue Exp.= Total borrowing cost - Borrowing Cost Eligible for Capitalization
= 36,750 – 8,750 = 28,000

8. Commencement of Capitalization
The capitalization of borrowing costs as part of the cost of a qualifying assets shall commence when:
Expenditure on the assets are being incurred.
Borrowing costs are being incurred.
Activities that are necessary to prepare the assets for its intended use or sale are in progress.

9. Example
Silver Star (Pvt) Limited is engaged in the manufacturing of surgical items. Currently the company is manufacturing its power plant.
The company started the project on Feb. 1, with its own funds. Later on due to shortage of funds, the company takes a loan to sponsor the project on May 1.
The first payment out of the loan on the plant is made on June 1.
Required: when should the company commence capitalization of borrowing cot on the plant.

10. Suspension of Capitalization
Capitalization of borrowing cost shall be suspended during extended period in which active development is interrupted.

11. Example
A company which is constructing an assets for its own use in the business. The production of assets started on 30 Sep Due to some internal problems the company, the construction remains closed from Nov 1 till Nov 31. The assets was completed on 31 Dec. The assets were constructed by utilizing the borrowed funds.

12. Cessation of Capitalization

13. Earnings Per Share (EPS)
IAS-33
Earnings Per Share (EPS)

14. Formula
EPS = Earnings
Shares

15. Methods for the Calculation of EPS
Basic EPS
Diluted EPS

16. Basic EPS Earning available for distribution to ordinary share-holders
Weighted Average No. of ordinary share outstanding during the period

17. Question 1 Jan. Opening balance 200,000 shares
10 Oct. Further issued 200,000 shares
Find the No. of weighted shares outstanding at 31 Dec.
Solution
Opening balance ,000 shares
Further issued 200,000 x 3/ ,000 shares
Total weighted shares 250,000