This include the construction of building long term

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This include: the construction of building, long term construction contract Intangibles assets R&D; and the production of inventories that take a considerable period of time to bring to saleable condition and others. 7 QUALIFYING ASSETS
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BUT exclude : Inventories that are routinely manufactured or otherwise produced in large quantities on a repetitive basis over a short period of time; Assets that are ready for their intended use or sale when acquired; and Investment other than investment properties See Illustration 123-7.1 NEJ PGFRS 2 nd Edition, p.528 8 CONT.
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Illustration 123-7.1 A Bhd has a bank overdraft to finance its daily operation; it also has a bank loan to finance its construction of a factory building. Solution: The borrowing costs in relation to the bank overdraft has to be expensed in the period when it was incurred. The borrowing costs in relation to the bank loan has to be capitalised as part of the cost of the factory building. 9 CONT.
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Capitalisation of Borrowing Costs Borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset shall be capitalised as part of the cost of the asset ; other borrowing costs are to be recognised as an expense when incurred . Conditions: a) It is probable that they will result in future economic benefit to the enterprise ; and b) The cost can be measured reliably 10 ACCOUNTING TREATMENT
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The amount of borrowing costs eligible for capitalization shall be determined as the actual borrowing costs incurred on that borrowing during the period less any investment income on the temporary investment of these borrowings. Refer to Example 1 11 CONT.
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Example 1 On. 1.1. x7, Kayangan Bhd borrows RM40m for the construction of a building. The loan carries and interest rate of 10% per annum. However, only RM10m was used and the balance RM30m was invested temporarily. The investment income received at the end of the year was RM1.5m.
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