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TABLE OF CONTENTS CHAPTER I GENERAL PROVISIONS CHAPTER II RECOGNITION AND MEASUREMENT CHAPTER III DISCLOSURE CHAPTER I GENERAL PROVISIONS Article 1. For the purpose of regulating the recognition and measurement of borrowing costs, and the disclosure of relevant information, these Standards are formulated in accordance with the Accounting Standards for Enterprises-Basic Standards. Article 2. The term "borrowing cost" refers to the interest and other costs incurred by an enterprise in connection with the borrowing of funds. The borrowing costs include interests on borrowings, amortization of discounts or premiums on borrowings, ancillary expenses, and exchange differences on foreign currency borrowings. Article 3. The financing costs relating to the financing leases shall be governed by the Accounting Standards for Enterprises No. 21-Leases. CHAPTER II RECOGNITION AND MEASUREMENT Article 4. The borrowing costs incurred to an enterprise which are directly attributable to the acquisition, construction or production of assets eligible for capitalization shall be capitalized and be recorded in the costs of the asset. Other borrowing costs shall be recognized as expenses on the basis of the actual amount incurred and shall be recorded in the current profits and losses. The term "qualifying asset" refers to the fixed assets, investment real estate, inventories and other assets, of which the acquisition, construction and production takes a substantial period of time to get ready for its intended use or for sale. Article 5. The borrowing costs shall not be capitalized unless they simultaneously satisfies the following requirements: (1) The asset disbursements have already incurred, including the cash payments for the acquisition, construction or production activities for preparing an asset eligible for capitalization, as well as the disbursement for the transfer of non-cash asset or for interest bearing debt; (2) The borrowing costs have already incurred; and (3) The acquisition, construction or production activities which are necessary to prepare the asset for its intended use or sale have started. Article 6. During the capitalization period, the to-be-capitalized amount of interests (including the amortization of discounts or premiums) in each accounting period shall be determined according to the following provisions: (1) For a specifically borrowed fund for the acquisition, construction or production activities for preparing an asset eligible for capitalization, the to-be-capitalized amount of interests shall be determined according to the actual costs incurred less any income earned on the unused borrowing fund as a deposit in the bank or as a temporary investment. The term "specifically borrowed fund" refers to a fund which is borrowed specifically for the acquisition, construction or production activities for preparing an asset eligible for capitalization; (2) Where a general borrowing is used for the acquisition, construction and production of an asset eligible for capitalization, the enterprise shall calculate and determine the to-be-capitalized amount of interests on the general borrowing by multiplying the part of the accumulative asset disbursements in excess of the weighted average asset disbursement for the specifically borrowed fund by the capitalization rate of the general borrowing used. The capitalization rate shall be calculated and determined according to the weighted average interest rate of the general borrowing. The capitalization period refers to the period from the commencement to the cessation of capitalization of the borrowing costs, excluding the period of suspension of capitalization of the borrowing costs. Article 7. If there are any discounts or premiums, the amount of discounts or premiums that shall be amortized in each accounting period shall be determined through the real interest rate method and an adjustment shall be made to the amount of interest in each period. Article 8. During the capitalization period, the amount of interest capitalized in each accounting period shall not exceed the amount of interest actually incurred to the relevant borrowings in the current period. Article 9. During the capitalization period, the exchange differences on foreign currency borrowings shall be capitalized and shall be recorded in the costs of assets eligible for capitalization. Article 10. For the ancillary expenses incurred to any specifically borrowed fund, those incurred before a qualifying asset under acquisition, construction or production is ready for the intended use or sale shall be capitalized at the incurred amount when they are incurred and shall be recorded in the costs of the asset eligible for capitalization; those incurred after a qualifying asset under acquisition, construction or production is ready for the intended use or sale by way of shall be recognized as expenses on the basis of the incurred amount when they are incurred and shall be recorded in the profits and losses of the current period. The ancillary expenses arising from a general borrowing shall be recognized as expenses at their incurred amount when they are incurred and shall be recorded in the profits and losses of the current period. Article 11. If the acquisition, purchase or construction of a qualifying asset is interrupted abnormally and if the interruption period lasts for more than 3 months, the capitalization of the borrowing costs shall be suspended. The borrowing costs incurred during such period shall be recognized as expenses and shall be recorded in the profits and losses of the current period till the acquisition, construction or production of the asset restarts. If the interruption is a necessary procedure for making the qualifying asset under acquisition, construction or production ready for the intended use or sale, the capitalization of the borrowing costs shall continue. Article 12. The capitalization of the borrowing costs shall be ceased when the qualifying asset under acquisition, construction or production is ready for the intended use or sale. The borrowing costs incurred after the qualifying asset under acquisition, construction or production is ready for the intended use or sale shall be recognized as expenses at the incurred amount when they are incurred and shall be recorded in the profits and losses of the current period. Article 13. A qualifying asset under acquisition, construction or production which has been ready for the intended use or sale shall be judged from the following aspects: (1) The substantial construction (including installation), or the production of the qualifying asset has been finished completely or substantially; (2) The qualifying asset under acquisition, construction or production conforms with or basically conforms with the design requirements, contractual provisions or production requirements, even if there is any specific discrepancy between it and the design, contractual or production requirements, its normal use or sale is not affected; (3) The amount of continuing disbursements for a qualifying asset under acquisition, construction or production is very small or nearly no such disbursement incurs. Where a qualifying asset under acquisition, construction or production needs trial production or trial operation, if the result of the trial production indicates that the asset is able to normally produce qualified products, or if the trial operation result indicates that the asset is able to run or operate normally, it shall be deemed to have been ready for the intended use or sale. Article 14. If each part of a qualifying asset under acquisition, construction or production is completed separately and ready for use or sale during the continuing construction of other parts and if the acquisition, construction or production activities which are necessary to prepare this part of asset for the intended use or sale has already been completed substantially, the capitalization of the borrowing costs in relation to this part of asset shall be ceased. If each part of a asset under acquisition, construction or production is completed separately and ready for use or sale during the continuing construction of other parts, but it can not be used or sold until the asset is entirely completed, the capitalization of borrowing costs shall be ceased when the asset is completed entirely. CHAPTER III DISCLOSURE Article 15. An enterprise shall, in its notes, disclose the following information in relation to the borrowing costs: (1) The amount of the borrowing costs which is capitalized in the current period; and (2) The capitalization rate which is used for calculating and determining the amount of the borrowing costs to be capitalized in the current period. |
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