Chapter 17


Sec. 1. Scope. This Chapter covers the definition, recognition and measurement, presentation and the adequate disclosures required in accordance with PPSAS 5 on Borrowing Costs. It also includes the policies, procedures and guidelines in accounting for borrowing costs.

Sec. 2. Definition of Terms. For the purpose of this Manual, the terms stated below shall be denoted as follows:

a. Borrowing costs - are interest and other expenses incurred by an entity in connection with the borrowing of funds. (Par. 5, PPSAS 5)

b. Qualifying asset - is an asset that necessarily takes a substantial period of time to get ready for its intended use or sale. (Par. 5, PPSAS 5)

Sec. 3. Composition of Borrowing Costs. Borrowing costs may include: (Par. 6, PPSAS 5)

a. Interest on bank overdrafts and short-term and long-term borrowings;

b. Amortization of discounts or premiums relating to borrowings;

c. Amortization of ancillary costs incurred in connection with the arrangement of borrowings;

d. Finance charges in respect of finance leases and service concession arrangements; and

e. Exchange differences arising from foreign currency borrowings, to the extent that they are regarded as an adjustment to interest costs.

Sec. 4. Recognition: Benchmark Treatment. Borrowing costs shall be recognized as an expense in the period in which they are incurred. (Par. 14, PPSAS 5) The borrowing costs pertaining to loans borrowed by the NG which are recognized by the Bureau of the Treasury, the benchmark treatment shall be used. (PAG 2, PPSAS 5)

Sec. 5. Recognition: Allowed Alternative Treatment. Borrowing costs that are directly attributable to the acquisition, construction, or production of a qualifying asset shall be capitalized as part of the cost of that asset. Said costs shall be capitalized when it is probable that they will result in future economic benefits or service potential to the entity and the costs can be measured reliably. (Pars. 18 & 19, PPSAS 5)

For loans borrowed directly by the NGAs and LGUs, this allowed alternative treatment shall be used. (PAG 2, PPSAS 5)

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