1. Global Smart Telecom Company acquired an LTE license.

The license
could be sold or licensed to a third part. However, management
intends to use it to operate a wireless network. Development of the
network starts when the license is acquired. Should borrowing costs
on the acquisition of the LTE license be capitalized until the network
is ready for its intended use?
-Yes. Since the license was solely acquired to operate a wireless network, it is
should be capitalized as according to PAS 23, paragraph 8 which states that
If the borrowing is directly attributable to the acquisition of a qualifying
asset, the borrowing cost is required to be capitalized as cost of the asset.
Also, the license was acquired for the development of the network
investment which meets the definition of a qualifying asset.
2. Aya Land Company, a real estate company has incurred expenses for
the acquisition of a permit allowing the construction of a building in
its Jurassic theme park in the middle of a dense forest. It has also
acquired equipment that will be used for the construction of various
buildings. Aya Land initially financed the acquisition of the permit
and the equipment by issuing long term bonds. Can borrowing costs
on the acquisition of the permit and the equipment be capitalized
until the construction of the building is complete?
-For the permit, yes. Since it was exclusively acquired for a single building, it
is part of the construction cost of the building which is in congruence of the
definition of a qualifying asset and in PAS 23, paragraph 8.
For the equipment, no. The definition of a qualifying asset according to PAS
23r is that it necessarily takes a substantial period of time to get ready for
the intended use or sale. Since the acquired equipment is ready for its
intended use at the acquisition date. It does not meet the definition of a
qualifying asset.
3. Unni Company is a highly liquid company that uses its own cash
resources to finance the construction of its new building. The cash is
being managed by a professional financial asset management group
earning interest for the company. Can management capitalize a
borrowing cost representing the opportunity cost of the cash
employed in financing the assets construction?
-No, it cannot be capitalized. Taken from paragraph 14 of PAS 23, the
capitalizable borrowing cost shall not exceed the actual interest incurred.

4. Taecyeon Corp, uses general borrowings to finance its qualifying

assets. However, cash flows from the operating activities would be
sufficient to finance the capital expenditures incurred during the
period. Can Taecyeon claim that the general borrowings are used to
finance working capital and other transactions but not to finance the
qualifying assets, in which case, no borrowing costs would be
capitalized?
-No. Even though the cash flows are sufficient to finance the expenditures
incurred, general borrowings are presumed to be used for acquiring a
qualifying asset as stated in PAS 23, paragraph 14.