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Talking mixed borrower in interest expense accounting treatment skills

Author: WeiZhi From: www.yourpaper.net Posted: 2010-03-15 17:56:00 Read:
[Abstract] enterprises in the process of construction or production of assets eligible for capitalization, both occupied specific borrowings and a general borrowing, that is, the formation of a mixed borrowings, interest expense accounting treatment becomes very complicated. This article through the confirmation process mixed borrower interest expense, measurement methods, case studies research to clarify the accounting treatment of interest expense in the blend borrowers skills for accounting practitioners Reference.
[Key words] general borrowings; specific borrowings; mixing the borrower; interest capitalized; interest expensed

Standards in accordance with the borrower whether there is a clear purpose, the borrower is divided into two types of specific borrowings and general borrowing. Special borrowing for building or production in accordance with the conditions of capitalized assets such as fixed assets, investment real estate and inventory specifically the amount borrowed, the interest on borrowings is generally treated as capitalized; General borrower is not explicitly use various borrowing interest on borrowings usually as the cost of treatment. Not explicitly use the average borrower prior and during use can be put into fixed assets, investment property and other assets eligible for capitalization build or production, which capitalization of general interest on the loans. Build or production process at the same time when the assets eligible for capitalization occupy a specific borrowings and general borrowing, that is, the formation of mixed loans, the accounting treatment of interest expense becomes very complex. Mixed borrower interest expense accounting treatment procedures, methods are not appropriate, on the one hand, will affect the determination of net profit or loss, resulting in earnings management; on the other hand will affect the efficiency of the accounting treatment, resulting in complicated work. Therefore, through case studies, and clarify mixed borrower interest expense accounting treatment skills.

A mixed borrower interest expense confirmation process

Step 1: interest capitalized interest expense of specific borrowings confirm
First, the specific borrowing each accounting period is divided into during capitalized and non-capitalized during the period (including pause during capitalized), in order to confirm the capitalization of interest and interest expense and idle borrower interest income respectively.
Secondly, during capitalized determine the actual interest of specific borrowings (usually recognized as interest payable) and idle borrower interest income (generally recognized as interest receivable), and to determine the specific borrowing interest capitalized portion (generally recognized as in Construction in progress or production costs).
Actual interest capitalized during the specific borrowing can be obtained by the following calculation: if they are borrowing from a bank or financial institution, the effective interest is the interest calculated in accordance with the principal plus interest adjustment; If the borrower is a premium or discount to issue corporate bonds, The effective interest coupon interest, net of amortization of premium or plus the amortization of discount.
Again during non-capitalized, respectively, to determine specifically the effective interest loans (usually recognized as interest payable) and idle the borrower interest income (usually recognized interest receivable), and to determine the part of the specific borrowings interest expense (generally recognized as financial costs).
The same principle of practical interest to determine the non-capitalization of specific borrowings during the actual interest capitalized during specific borrowings.
It should be noted that: the capitalization of interest capitalized during specific borrowings linked to expenditures for the asset, but not linked.
Step 2: general interest on the loans capitalized interest expense of confirmation
First, to determine a general borrowing to build or production in accordance with the conditions of capitalized assets due to the lack of specific borrowings.
Secondly, the capitalization period by the weighted average number of the the general borrowing cumulative expenditures for the asset and the capitalization rate of the general borrowing to determine the parts of general borrowings capitalized amount (generally recognized as construction in progress or production costs);
Again, in the accounting period, the general part of the borrowing costs (usually recognized as finance costs), general borrowings capitalized amount determined by the general borrowing the actual interest deduction in a particular accounting period.
It should be noted that: general interest on the loans capitalized linked and asset expenditures linked not only with the capitalization period.
The third step: the amount of interest capitalized to conduct a limited test
The amount of interest capitalized of each accounting period does not exceed the amount of the current mixed borrowings interest.

Mixed borrower interest expense metering method

Determine the amount of interest capitalized interest on borrowings accounting measurement, the amount of interest expense will be solved.
(A) The specialized interest capitalized borrowing metering
During the capitalization period: the specific borrowing the amount of interest capitalized = the specific borrowings actual interest - idle borrowing interest income.
Idle borrowing interest income The unused borrowing funds deposited in the bank's interest income, or the temporary investment of the amount of investment income.
(B) specific borrowing interest costs of metering
Non-capitalization period: the amount of specific borrowings interest expense = actual interest on specific borrowings - idle interest income of the borrower.
Ibid idle borrower's interest income.
(C) general interest capitalized borrowing metering
In the the capitalization period: general borrowings capitalized interest amount = the general borrowing cumulative weighted average asset disbursement กม general borrower's capitalization rate.
The accumulated assets of the general borrowing occurred during capitalized expenditures must be, at the same time must be linked to asset expenditures.
General borrowing capitalization rate is the weighted average interest rate of the general borrowing.
(D) Average borrowing interest costs of metering
General borrowing costs in the accounting period: Amount = general borrowing amounts capitalized interest - general borrowing.

Mixed borrower case analysis of the treatment of interest expense

2008 CPA Uniform Examination resource materials "accounting", 393 Example 18-20, "for example, is described. Example 1, MN proposed plant in the region to build a new plant, the relevant information is as follows:
(1) 20 x 7 years January 1, specifically to the bank loans 5000 million, for a period of 3 years, an interest rate of 6% per annum, interest payable January 1 of each year.
(2) In addition to the specific borrowings, the company only a sum of other borrowings, for long-term loans borrowed by the Company on December 1, 20 กม 6-year $ 6,000 million, for a period of five years and an interest rate of 8% per annum, each year in December the 1st of interest.
(3) approval formalities and other reasons, the plant began in 20 กม 7 April 1 under construction, the date of payment for work 2000 million. During the project construction expenditures are as follows:
20 กม 7 years June 1: $ 10 million;
20 กม 7 year July 1: $ 3,000 million;
20 กม 8 January 1, 2010: $ 1,000 million;
20 x 8 years April 1: 500 million;
July 1: 20 กม 8 500 million.
The project was completed on September 30, 20 กม 8, to achieve the intended use. : Due to construction quality problems in 20 กม 7 September 1-December 31, 2009 downtime 4 months.
(4) the specific borrowing all unspent part the bank assumes that month interest
0.25%. Assumed that the whole year in accordance with the 360 ??days, calculated in accordance with 30 days each month.
Based on the above information, related to the accounting treatment.
(A) accounting for 20 กม 7 annual interest on borrowings
The first step, the specific borrowing interest capitalized interest expense of:
Special borrowing capitalization period: 7 years April 1 -20 7 years (5 months). September 1
Of specific borrowings capitalized during the actual interest = 5 000 x 6% x 150/360 = 125 (million) (interest payable)
Specific borrowings capitalized during the period of interest income = 3 000 x 0.25% x 2 2000 กม 0.25 กม 1 = 20 (million) (receivable interest)
Of specific borrowings capitalized during the capitalized amount = 125-20 = 105 (million) (construction in progress)
Specific borrowings during the non-capitalized: 20 x January 1 - April 1, 2009 and 7 years September 1-December 31, 2009 (7 months).
Specialized non-capitalized borrowings during the actual interest = 5 000 กม 6% กม 210/360 = 175 (million) (interest payable)
The specific borrowings during the period of non-capitalized interest income = 5 000 x 0.25% x 3 = 37.5 (million) (interest receivable)
The amount of the costs of specific borrowings during the period of non-capitalized = 175-37.5 = 137.5 (million) (finance charges)
The second step, the general borrowing interest capitalized interest costs of:
Accounting period: the actual interest of the general borrowing = 6 000 กม 8% = 480 (million) accumulated expenditures for the asset-weighted average of the interest payable capitalization period: general borrowings = 1 000 กม 60/360 = 166.67 (million)
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