2.  Basis of preparation and accounting policies (cont’d) 2.3  Summary of significant accounting policies (cont’d) (q)  Borrowing costs (r) Provisions General Product warranty NOTES TO THE CONSOLIDATED FINANCIAL  STATEMENTS  (RMB AND US$ AMOUNTS EXPRESSED IN THOUSANDS, EXCEPT PER SHARE DATA)  Borrowing costs directly attributable to the acquisition, construction or production of an asset that necessarily  takes a substantial period of time to get ready for its intended use or sale are capitalized as part of the cost of  the asset. All other borrowing costs are expensed in the period in which they occur. Borrowing costs consist of  interest and other costs that an entity incurs in connection with the borrowing of funds. A qualifying asset is one that necessarily takes a substantial period of time to get ready for its intended use  or sale. To the extent that funds are borrowed specifically for the purpose of obtaining the asset, the amount  of borrowing costs eligible for capitalization should be determined as the actual borrowing costs incurred  less any investment income on the temporary investment of those borrowings. To the extent that funds are  borrowed generally and used for the purpose of obtaining the asset, the amount of borrowing costs eligible  for capitalization is by applying a capitalization rate to the expenditures on that asset. The capitalization rate  should be the weighted average of the borrowing costs applicable to the borrowings of the enterprise that  are outstanding during the period, other than borrowings made specifically for the purpose of obtaining a  qualifying asset. The amount of borrowing costs capitalized during a period should not exceed the amount of  borrowing costs incurred during that period. Provisions are recognized when the Group has a present obligation (legal or constructive) as a result of a past  event, it is probable that an outflow of resources embodying economic benefits will be required to settle the  obligation and a reliable estimate can be made of the amount of the obligation. When the Group expects  some or all of a provision to be reimbursed, for example, under an insurance contract, the reimbursement is  recognized as a separate asset, but only when the reimbursement is virtually certain. The expense relating to a  provision is presented in the statement of profit or loss net of any reimbursement. The Group recognizes a liability at the time the product is sold, for the estimated future costs to be incurred  under the lower of a warranty period or warranty mileage on various engine models, on which the Group  provides free repair and replacement. Warranties extend for a duration (generally 12 months to 24 months) or  mileage (generally 50,000 kilometers to 300,000 kilometers), whichever is the lower. Provisions for warranty are  primarily determined based on historical warranty cost per unit of engines sold adjusted for specific conditions  that may arise and the number of engines under warranty at each financial year. In previous years, warranty  claims have typically not been higher than the relevant provisions made in our consolidated statement of  financial position. If the nature, frequency and average cost of warranty claims change, the accrued liability for  product warranty will be adjusted accordingly. If the effect of the time value of money is material, provisions are discounted using a current pre-tax rate that  reflects, where appropriate, the risks specific to the liability. Where discounting is used, the increase in the  provision due to the passage of time is recognized as a finance cost. China Yuchai International Limited | Annual Report 2013 58