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SFAS No.
3
Borrowing Cost |
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 Status |
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Revised by the
Financial Accounting Standards Committee In Taiwan on 11 January
2001 |
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Summary |
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The purpose of this Standard is to
establish the accounting standards for capitalization |
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of interest costs. |
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The interest costs referred in this
Statement are defined as interest and other costs |
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incurred by an enterprise in
connection with the borrowing of funds, which usually |
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include: |
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(a)interest on short-term and long-term borrowings and bank
overdrafts; |
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(b)amortization of discounts or premiums relating to borrowings; |
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(c)amortization of ancillary costs incurred in connection with the
arrangement of |
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borrowings; |
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(d)accrued interest expense of lease liability under capital leases; |
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(e)exchange differences arising from foreign currency borrowings to
the extent
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that they are regarded as interest costs. |
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The cost of an asset should include
all necessary and reasonable expenditures incurred |
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to bring the asset to the condition
and/or location necessary for its intended use (or for |
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its saleable condition). If a period
of time is required to carry out the necessary
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acquisition or construction and to
bring the asset to its necessary condition and location, |
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then all the interest costs incurred
as a result of such expenditure is a part of the costs |
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of acquiring the asset. Therefore,
such interest costs should be capitalized as part of
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acquiring costs for the asset and
amortized over the service life of the asset. |
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 Qualifying
assets |
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Assets that qualify for capitalization of interest costs include: |
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(a)assets that are acquired or constructed by the business, or by
others for the |
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business’ own use; and |
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(b)assets intended for sale or lease that are constructed or
otherwise produced as |
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a discrete project (e.g., ship, real estate development or building
construction |
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by construction business). |
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However, the interest
incurred on expenditure for the following types of assets shall not
be |
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capitalized: |
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(a)inventories that are routinely manufactured or otherwise produced
in large |
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quantities on a repetitive basis over a short period of time; |
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(b)assets that are in use or ready for their intended use in the
operating activities |
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of the business; and |
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(c)assets that are not being used in the operating activities of the
business and |
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that are not undergoing the activities necessary to get them ready
for use. |
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Capitalization
period |
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The capitalization period shall
commence when all the following three conditions are |
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present: |
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(a)expenditures for the asset are being incurred; |
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(b)activities that are necessary to bring the asset to the condition
and location |
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for its intended use are in progress; and |
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(c)interest costs are being incurred. |
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Capitalization of interest
costs |
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(a)The amount of interest cost to be capitalized for qualifying
assets is limited to |
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the interest cost incurred during the acquisition or construction
periods that |
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theoretically could have been avoided if expenditures for the assets
had not |
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been made. |
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(b)During each accounting period, the amount of interest to be
capitalized for |
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each qualifying asset shall be determined by applying an interest
rate(s) to the |
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average amount of accumulated expenditure for the asset during the
period. |
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The capitalization interest rates used in an accounting period shall
be the |
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interest rates applicable to borrowings outstanding during the
period. |
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(c)The total amount of interest cost capitalized in an accounting
period shall not |
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exceed the total amount of interest cost recognized by the business
during |
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that period. However, the interest income derived from temporary
investment |
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of the unused specific borrowings for a qualifying asset or from
compensated |
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balance of general borrowings shall be offset against the borrowing
costs. |
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Expenditures on a qualifying asset include only those expenditures
that have |
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resulted in payment of cash, transfers of non-cash assets, or the
assumption |
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of interest-bearing liabilities. |
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When
the book value of the qualifying asset is higher than its fair value
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When the book value of a qualifying
asset is higher than its fair value, the capitalization |
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of interest costs shall continue and
the loss from the excess of book value over fair value |
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shall be recognized. |
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This Statement also specifies
disclosures about capitalization of interest costs. |
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Effective
date
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This Statement becomes effective for
the fiscal year ending on and after December 31, |
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2001. |
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