1. What is borrowing costs? Please define according to the standard.

= Borrowing costs are defined as interest and other charges incurred by a firm in connection
with the borrowing of funds, according to MASB 27 paragraph 3.

2. By referring to the MFRS, briefly explain the recognition of borrowing costs.

= Borrowing costs directly related to the purchase, building, or production of a qualified
asset are included in the asset's cost and should be capitalised. [IAS 23.8]

3. According to the above article, the author highlighted that “Only Malaysia offered loan
moratorium”. Discuss. Your discussion must include the following:

a. Why Malaysia offered the moratorium?

= Based on this article, Finance Minister Tengku Datuk Seri Zafrul Tengku Abdul Aziz said that
the moratorium took place since April for the benefit to individuals and a small enterprises
(SMEs) during this new era Covid-19.

b. The benefit and drawback of moratorium

Benefit Drawback

On this article of course this moratorium
help many individual or enterprise that
need to survive on this new era Covid – 19.
So this moratorium help a lots for someone
that lost their jobs or their facing salary cut.
We know that the moratorium is just only 6
months that individual or enterprise no
need to pay theirs loan but they must know
that the moratorium is actually a deferred
payment scheme for 6 months, whereby
additional interest or profit is added to that
amount. So they also need to pay 6 months
after that and this moratorium is not free
loan.

c. What are the impact of moratorium to the borrowing cost?

= Like I said before moratorium is not such a benefit for us we still ne to pay our loan so for
some loan there is an interest or other costs that need to measure again after the end of
 moratorium. This loan from moratorium will increase the amount or cost of interest charged
during this moratorium took place. If interest still be charged during the moratorium, that
sum will be added to the outstanding balance at the end of moratorium.

d. Conclude with your opinion.

= In my opinion there is such a positive impact with this moratorium and also got a negative
impact. We also know that the moratorium will effect or impact to the borrowing cost. We
can take this as a lesson for us to make an investment or making a saving because not
everyone can handle with that situation. Sometimes the good things might be worst at the
end of the day. Moratorium can be good to everybody in this county but after end of the
moratorium everybody need to struggle again and back to pay their loan or debts.

e. Please support your answer with any sources and issues.

= Based on my answer on (d) I mentioned that they will be positive and negative impact on
this moratorium. The positive impact might be on the person that making a loan or debts
where they no need to pay their loan or debts for a certain periods so it will help them
repayment strategy in a stress-free way. Moratorium is just not affect to the borrowers but
also affect to the institution or organization that give a loan or debts such as bank. That’s
why I said that there is also had negative impact on this moratorium. According to Malaysian
banks they could see their non-performing loans (NPLs) increase up to 4% of total loans in
the near term, S&P Global Ratings said, as provisions for potential credit losses are likely to
be pressured over the next one to two years when the loan-repayment moratorium expires
by the end of 2021.

4. Due to the Pandemic COVID 19, what are the impact of borrowing cost on developers and
construction in Asean including Malaysia? Please support your discussion with the example
and current issues.
 Many nations, including Malaysia, have seen an apparent increase in the frequency of
viral infections, prompting nationwide lockdowns and other restrictions on movement and
closeness. The virus, as well as the steps used to try to control it, had a significant impact on
businesses and the economy in general. For example, after the WHO designated COVID-19 a
pandemic, the West Texas Intermediate crude oil price benchmark fell into negative
territory, a historic low.

All sector especially economics were impacted by this pandemic, but we want to see
about how company or organization that applied borrowing cost on their business affected
by this pandemic. As we know that the implementation of the IAS 23 Borrowing Costs is only
a timing difference in recognising the borrowing costs and according to AmInvestment Bank,
which has a neutral outlook on the property market, there will be no influence on property
developers' cash flows.

According to IAS 23, borrowing costs directly attributable to the acquisition, building,
or manufacturing of a "qualifying asset" (one that must be prepared for its intended use or
sale over a long period of time) are included in the asset's cost. Other borrowing charges are
recognised as an expense.

When a project is ready to sell, all borrowing costs that were previously capitalised
after the launch must be unwound and recognised as expenses in the income statement,
including borrowing costs that were previously capitalised on unsold units classified as
inventories.

In new era Covid-19, the economic turbulence resulting from the COVID-19
pandemic might lead to the suspension of projects due to legal restrictions on working or
shortages of labour or supplies. So what happen to the borrowing cost that need to calculate
when developers or construction stop for a moments their projects.

With this pandemic, many developers that used borrowing cost can affect to their
financing, we know that borrowing cost is an interest so if there is no interest during that
pandemic so there is no such an income for developers or construction. When contractors
fail to produce on time, it may jeopardise the capacity of property developers to deliver to
their buyers on time – especially for housing projects, which make up a large portion of the
Malaysian construction industry. When buyers stop to pay their loan or debts there will be
effect on developers or construction.
5. Business owners are constantly faced with deciding how to finance the operations and
growth of their businesses. Do they borrow more money (Debt securities) or seek other
outside investors (investment in equity)? Which one is better? Discuss the advantages and
disadvantages for both. Choose which is better. Justified.

= First of all we need to know first what the meaning by debt securities and meaning of
investment in equity. Debt securities are obligations that can be purchased or sold between
parties prior to their maturity date. Debt securities are financial products that contain a
guarantee from the issuer to pay the bearer a predetermined amount by a specific date, i.e.
when the debt security matures.
A financial transaction in which a particular number of shares of a firm or fund are
purchased, entitling the owner to be reimbursed rateably according to his ownership
percentage, is known as an equity investment. In other terms, it is a transaction in which an
individual or an organisation invests money to become a shareholder in a private or public
company.
So for company, which method is better for their financing and also for the growth of
their businesses? We need to take a look at their advantages and also disadvantages of this
two methods.

Advantage
Equity •No required payments, unlike debt,
Investment giving management more flexibility
around repayment.
• Dividends to equity shareholders
may be paid, but the time and
amount are at the discretion of the
board and management.
• Provides businesses with access to a
large investor base and network.
Disadvantage
• When you issue equity,
you dilute your ownership,
and equity has a high cost of
capital.
•Investing in public equities
entails extra regulatory
restrictions, scrutiny from
shareholders and equity
analysts, and complete
financial statement
disclosure.
•The management team
could lose control owe their
company and be voted out

Debt  The interest expense on debt
Securities is tax- deductible, unlike
dividends to equity
shareholders (although
recent tax reform rules limit
the deduction for highly
levered companies),
 Debt results in no ownership
dilution for equity
shareholders and has a lower
cost of capital.
 As a result of the increased
debt, management is forced
to be more disciplined,
resulting in risk-averse
decision-making as a side
benefit.
by shareholders if the
company underperforms.
• Required interest and
principal payments that put
the loan in risk.
• The loss of freedom
caused by tight debt
covenants inhibits
management from doing
things like borrowing more
debt, paying a dividend, or
making an acquisition.
•There is less opportunity
for mistake in decision-
making, therefore poor
management decisions have
more severe effects.

As we can see, in my opinion investment equity is much better than debt securities for
operations and business. This is because equity investment indicate ownership in the
company whereas debt securities indicate a loan to the company. So ownership is better
than a loan. How can someone or company want to growth or have a good financing if they
have a loans. Equity in investment also can make a portion of profits to the company.