Question

How should borrowing costs relating to an asset being constructed over a substantial period of time be treated in the accounts?

		Expensed as incurred.
		Capitalised and amortised over the period of the construction of the asset.
		Accrued and amortised over the period of the loan.
		Capitalised as part of the cost of the asset.

Answer 1

The correct answer for the question is Option D - Capitalized as part of the cost of the asset.Borrowing costs are required to be included in the cost of the asset and capitalized. Since borrowing cost are directly attributed in brining an asset to produce future economic benefits, these costs should be capitalized. Hence, Option D is the corect answer.

Option A is incorrect as Borrowing costs should not be expensed.

Option B is incorrect as Borrowing costs should be capitalized but however it should not be amortized over the period of the construction of the asset.

Option C is incorrect as Borrowing cost need not be amortized over the period of the loan.

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