Temporary investment income

Learning objectives

• Calculate the amount eligible for capitalisation after deducting the investment income on the temporary investment of borrowed funds not yet spent.L2, L3
• Justify and defend in a professional file (L4) the treatment adopted for the "Deduction of temporary investment income" concept, distinguishing the IFRS requirement, the case data, the teaching assumption and judgement.L4

Normative references

• IAS 23 §12Specific borrowing: the borrowing costs eligible for capitalisation are the actual borrowing costs incurred on that borrowing during the period, less any investment income on the temporary investment of those borrowings.

Original summaries of the paragraphs (reference register), never a quotation of the standard.

3 questions

• Cordier finances a power station with a specific borrowing whose actual costs for the year are {actual_costs}. For {months_invested}, part of the funds not yet spent, {unspent_proceeds}, is temporarily invested at {investment_rate} a year. Calculate the investment income, then the amount of borrowing costs eligible for capitalisation.L2
• Fabrèges finances a logistics park with a specific borrowing whose interest for the year is {interest_incurred}, payable at the end of the year. The funds not yet spent were temporarily invested and earned {investment_income} received in cash. Case convention: the investment income is presented as a deduction from the amount capitalised. Record the entry for the interest capitalised, then the entry for the investment income.L3
• Orvault finances a power station with a specific borrowing of 8,000,000 at 6% a year, drawn on 1 January; capitalisation is open all year. The funds not yet spent were temporarily invested and earned 55,000 over the year (case data). Which treatment of borrowing costs is correct for the year?L4