There are three conditions for capitalization of borrowing costs, that is, asset expenditure has occurred, borrowing costs have occurred, and necessary construction or production activities have begun to make assets reach the predetermined usable or saleable state.
Only when these three conditions are met can the relevant borrowing costs begin to be capitalized. The asset expenditure here has occurred, which refers to the expenditure incurred by the enterprise to purchase and build assets that meet the capitalization conditions, including the expenditure of paying cash, transferring non-cash assets and undertaking interest-bearing debts.
How to determine the assets and loan scope for capitalization of borrowing costs;
1. Determination of capitalization amount of loan interest
(1) Determination of capitalization amount of special loans
Capitalized amount of special loan = actual interest expense during capitalization-deposit interest income during capitalization.
Special loan expense amount = actual interest expense during expense period-deposit interest income during expense period.
(2) General loans
Capitalized amount of general loan interest expense = weighted average of accumulated asset expenditure exceeding special loan × capitalization rate of occupied general loan.
Where: capitalization rate of occupied general loans = weighted average interest rate of occupied general loans.
= the sum of the actual interest of the current period of the occupied general loan ÷ the weighted average of the principal of the occupied general loan.
Where: the weighted average of the principal occupied by general loans = σ (principal occupied by each general loan × days occupied by each general loan in the current period/days in the current period)
Extended data:
If the loan is used for investment in fixed assets, financial expenses such as loan interest should be included in the construction cost of the investment project before the project is put into production, which is a part of the value of fixed assets, and capitalization of this part of loan expenses is an integral part of assets. ?
However, after the project is officially put into production, the interest and other expenses arising from the outstanding loans will be recorded in the financial expenses of production and operation activities, that is, reflected in the income statement.
Determine the configuration file
Specific contract
(I) Capitalized amount of interest expenses of special loans Article 6 (1) of these Standards stipulates that if special loans are borrowed for the purpose of purchasing, constructing or producing assets that meet capitalization conditions, the interest expenses actually incurred in the current period of special loans shall be used.
After deducting the interest income obtained by depositing unused loan funds in the bank or the investment income obtained by temporary investment, it is determined as the capitalized amount of special loan interest expenditure, and it is included in the cost of assets that meet the capitalization conditions during the capitalization period.
Special loans should have a clear special purpose, that is, the money borrowed specifically for the purchase, construction or production of an asset that meets the capitalization conditions, and usually there should be a loan contract indicating the special purpose.
General loan
(2) Capitalized amount of general loan interest expense
General loans refer to loans other than special loans. According to Item (2) of Article 6 of these Standards, during the capitalization period of loan expenses, if general loans are occupied for the purpose of purchasing, constructing or producing assets that meet the capitalization conditions, the interest amount that should be capitalized on general loans shall be calculated according to the following formula:
Capitalized amount of general loan interest expense = weighted average of accumulated asset expenditure exceeding special loan × capitalization rate of occupied general loan.
Capitalization rate of occupied general loans = weighted average interest rate of occupied general loans = sum of actual interest of occupied general loans in the current period ÷ occupied weighted average principal of general loans.