Paragraph 11 of FRS 1, Presentation of Financial Statements, requires that financial statements should not be described as complying with Financial Reporting Standards unless they comply with all the requirements of each applicable Standard and each applicable Interpretation of the Financial Reporting Standard. INT FRSs are not intended to apply to immaterial items.
Reference: FRS 23, Borrowing Costs
ISSUE
FRS 23.06 and FRS 23.10 allow the choice of either:
recognising all borrowing costs as an expense in the period in which they are incurred (Benchmark Treatment); or
capitalising borrowing costs that are directly attributable to the acquisition, construction or production of qualifying assets as part of the cost of that asset (Allowed Alternative Treatment).
The issue is whether an enterprise that has chosen a policy of capitalising borrowing costs should apply this policy to all qualifying assets or whether an enterprise may choose to capitalise borrowing costs for certain qualifying assets and not for others.
CONSENSUS
3.
Where an enterprise adopts the Allowed Alternative Treatment, that treatment should be applied consistently to all borrowing costs that are directly attributable to the acquisition, construction or production of all qualifying assets of the enterprise. If all the conditions laid down in FRS 23.10 are met, an enterprise should continue to capitalise such borrowing costs even if the carrying amount of the asset exceeds its recoverable amount. However, FRS 23.18 explains that the carrying amount of the asset should be written down to recognise impairment losses in such cases.
BASIS FOR CONCLUSIONS
4.
To ensure comparability, paragraph 35 of the FRS Framework explains that the measurement of like transactions and other events must be carried out in a consistent way throughout an enterprise and over time in separate and consolidated financial statements. In consolidated financial statements, FRS 27.20 and FRS 27.21 require uniform accounting policies for like transactions and other events in similar circumstances.
5.
In addition, FRS 23.10 requires the capitalisation of borrowing costs when all the specified conditions are met as the only appropriate accounting method under the Allowed Alternative Treatment. By explicitly restricting the scope of this treatment to qualifying assets and by defining them in FRS 23.03, the Standard leaves no room for further discretion once an enterprise has chosen this accounting policy for these assets. Therefore, it would not be appropriate for an enterprise to apply the Allowed Alternative Treatment to some qualifying assets but not to others.
Effective Date: INT FRS 2 comes into effect on 1 February 2003. Changes in accounting policies should be accounted for according to the transitional requirements in FRS 23.29. Therefore, a company using the Allowed Alternative Treatment may choose not to capitalise all borrowing costs incurred before the effective date of INT FRS 2
