UK Ias 23

[Pompy1]

Finance manager for a boat dealership in the south of England.

After some advice!

we purchase boats from eu, on transfer of ownership (delivery) we place them on a stocking facility. Interest is incurred daily until we adopt them off the facility. We then process a single invoice received monthly for all interest stocking charges incurred in the month, currently posted to interest expense nominal.

What i am looking to do is split the invoice charges and post them to the relevant stock code used for each individual boat. Which i believe is allowable for frs 102 under ias 23.

we also have an interest covenant due to a LT loan.

Upon sale we transfer the balance of the stock code to COS.

how would this affect the covenant if we are not expensing interest in the period it is incurred?

some of these stock items can remain for upto 6 months at a time!

thanks for any advice!

 

[simply_slmn]

Capitalizing interest costs under FRS 102/IAS 23 by attributing them to each boat's stock code is allowable and aligns with matching costs to revenues when the boats are sold. However, this change could affect your interest covenant, as it reduces the interest expense recorded in the profit and loss account, potentially impacting financial ratios. It's crucial to review the covenant terms and discuss with your lenders to ensure compliance and to understand any potential effects on your financial reporting.

 

[Fidget]

I'm struggling to see why this has anything to do with IAS 23.

You have a loan, there are loan covenants - essentially the terms and conditions of the loan. So it's the loan covenants you need to be thinking about keeping within.