I - Financial income on net debt

Content

• R53200 - Capitalized interests
• R53710 - Interest income on cash & cash equivalents
• R53711 - Interest income on other current financial assets
• R54720 - Other financial income related to non-operational items
• R53750 - Income related to interest rate derivative instruments

Capitalized interests (R53200)

Interest expenses on money borrowed to finance the construction of a non-current asset are recorded in interest and similar expenses.

When these expenses meet the capitalization conditions, they are offset by the recognition of revenue in "capitalized interests".

IAS 23 (incorporated into FRG IAS 16 paragraph 7.1.9 Borrowing costs - https://wiki.solvay.com/display/FRG/S02.02-AS-03) requires that borrowing costs linked to financing major capital projects be capitalized and depreciated with the capital expenditures.

• The amount of borrowing costs capitalized during the year has to be disclosed in the financial section of the annual report.
• Remarks:
  • Its logical sign is positive as it offsets borrowing charges.
  • As the partner is always external, the costs are reported at company level.
  • It is taken into account when reconciling fixed assets through the carrying value of fixed assets  (note that the amount of borrowing costs capitalized is not included in the fixed assets expenditures)

Refer to the FRG paragraph 7.1.9 Borrowing costs chapter on IAS 16 (https://wiki.solvay.com/display/FRG/S02.02-AS-03) for more information and examples on capitalization of borrowing costs. 

Interest income on cash & cash equivalents (R53710)

This heading relates to the statement of financial position heading falling in A500 - Cash and Cash Equivalents. It includes:

• Income from short-term investments, i.e.
  Dividends and interests on time deposits as well as interests on demand deposits recorded as cash equivalents.
• Interest received on other cash and cash equivalent
• Interests on internal loans

Interest income on other current financial assets (R53711)

This heading relates to the statement of financial position heading falling in A550 - Other current financial assets.

Other financial income related to non-operational items (R54720), including

• income from non-financial receivables
• net proceeds from the sale of investment securities
• increases in the probable sale value of held-for-trading securities
• income from investment securities
• gains from repurchases by the company of shares, fixed-income securities and preferred investment certificates issued by itself
• interest on items in the working capital requirement when these in effect constitute financing operations (such as an increase in payment terms agreed by the supplier)
• income on discounted bills, i.e. income recorded by CICC for discounting receivables originating from other Group entities.
  Remarks:
  • Internal discounting of receivables is not allowed between two Group companies
  • Exception: For Mercosur, the charges and income on discounted bills are reported under "R53620/R53720 - Other financial expenses/income related to operational" above Underlying EBIT; this to be in line with the exception for Mercosur in the way to treat the discounted bills in the balance sheet (in deduction of trade receivables).

Note: An agreement is considered as a financing transaction when:

• the rate or period of the financing is atypical in relation to usual commercial practices in the country or region concerned and/or
• the contract expressly envisages that it is a financial and not commercial operation.

Income related to interest rate derivative instruments (R53750), including gains (changes in fair value/interest income and expense) on the types of financial instrument covered by interest-rate options and interest-rate swaps not meeting hedge accounting conditions.

Example: income from swaps.