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Loss on interest rate swap can be capitalized?

23 November 2009 2,505 views 7 Comments

For development of qualifying assets we took a loan from bank, as per ias 23, interest cost on loan taken for qualifying assets will be capitalized to those assets, as per the loan agreement interest rate was libor+1.5, initially libor was high so to cover the loss of probable higher rate of interest co. went in to interest rate swap and as per that now co. has to pay only fix 4.5%  now libor rate has gone down so my question is, loss on interest swap will be transferred to P&L or will be capitalized to that assets or in case of profit what will be treatment.

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7 Comments »

  • Radhika1308 said:

    Hi, As per my understanding, IAS 39 allows costs of qualifying assets to include transfers from equity of gains/losses on qualifying cash flow hedges. Please let me know if you need further clarifications in this regard.

    # 26 November 2009 at 10:34 am
  • ca.lokeshjain (author) said:

    thanks radhika, but it would be favor for me if you elaborate it with a example

    # 26 November 2009 at 5:55 pm
  • jafferyasim said:

    I think you should follow hedge accounting under IAS 39, & any interest cost net of hedged instrument cost should be capitalized till the asset is available for use.

    # 2 December 2009 at 6:12 am
  • riyer said:

    Question of PWCs’ guide on borrowing cost:

    2.9 Are the effects of a cash flow or fair value hedging relationship on interest for a specific project borrowing capitalised?

    PWC’s response to the above Q:

    Yes. IAS 23R BC 21 indicates that the standard does not address whether the effects of hedging should be capitalised. However, the purpose of an IAS 39 hedging relationship is to modify the borrowing costs of the entity related to a specific debt. We therefore believe that entities should capitalise interest on borrowings in an IAS 39 designated hedging relationship after taking into account the effects of hedge accounting.
    Ineffectiveness on such hedging relationships should continue to be recognised in profit or loss.

    I can mail you the guide if you wish to have it.Please send me ur mail id

    # 22 December 2009 at 10:24 am
  • ca.lokeshjain (author) said:

    thanks Riyer

    Kindly mail me the guide also, My mail id is:- ca.lokeshjain@gmail.com

    # 27 December 2009 at 9:41 pm
  • oguz said:

    Riyer,

    It would be very kind of you if you mail me the guide.
    Regards

    oguzoo@yahoo.com

    # 7 January 2010 at 1:10 pm
  • ifrslist
    ifrslist said:

    [New Post] Loss on interest rate swap can be capitalized? – http://www.ifrslist.com/2009/11/loss-on-...
    via Twitoaster

    # 29 January 2010 at 10:32 am

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