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IAS 23 Borrowing Costs Guide

IAS 23 Borrowing Costs defines borrowing costs and qualifying assets and outlines the accounting treatment for capitalizing borrowing costs related to qualifying assets. Borrowing costs must be capitalized if they are directly attributable to the acquisition, construction or production of a qualifying asset. Capitalization begins when expenditures are being incurred and activities to prepare the asset are in progress, and ceases when the asset is substantially ready for use.

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59 views5 pages

IAS 23 Borrowing Costs Guide

IAS 23 Borrowing Costs defines borrowing costs and qualifying assets and outlines the accounting treatment for capitalizing borrowing costs related to qualifying assets. Borrowing costs must be capitalized if they are directly attributable to the acquisition, construction or production of a qualifying asset. Capitalization begins when expenditures are being incurred and activities to prepare the asset are in progress, and ceases when the asset is substantially ready for use.

Uploaded by

Ronald Davis
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Borrowing Cost

 IAS 23 Borrowing Cost


IAS 23 Borrowing Costs 1
Definition
• Borrowing costs:
– Interest and other costs incurred by an entity in connection
with the borrowing of funds
• Qualifying asset:
– An asset that necessarily takes a substantial period of time
to get ready for its intended use or sale
Accounting treatment
• Borrowing costs that directly relate to the acquisition,
construction or production of a qualifying asset must be
capitalised as part of the cost of that asset.
IAS 23 Borrowing Costs 2
Types of borrowing costs
• Funds borrowed specifically:
– Capitalise actual borrowing costs incurred less investment
income on temporary investment of funds
• Funds borrowed generally:
– Capitalise borrowing costs calculated as the weighted
average cost of borrowings for the period multiplied by the
expenditure on the qualifying asset
– Note that the amount capitalised should not exceed total
borrowing costs incurred in the period
IAS 23 Borrowing Costs 3
Commencement of capitalisation
• Capitalisation of borrowing costs should begin when:
– Expenditures for the asset are being incurred
– Borrowing costs are being incurred
– Activities that are necessary to prepare the asset for its
intended use or sale are in progress
IAS 23 Borrowing Costs 4
Suspension and cessation of capitalisation
• Capitalisation of borrowing costs should be suspended during
extended periods when development is interrupted. For
example due to workforce strikes or inclement weather.
• Capitalisation of borrowing costs should cease when
substantially all of the activities necessary to prepare the
qualifying asset for its intended use or sale are complete.
• This is likely to be when the asset is ready for use (even if it is
not being used).

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