05/03/2023IAS 23 Borrowing Costs 1
IAS 23
BORROWING COSTS
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Objective
Prescribe accounting treatment of borrowing costs
Immediately expense borrowing costs
Capitalise borrowing costs under allowed alternative treatment
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Definitions
•Interest and other costs incurred as a result of borrowing funds
Borrowing costs
•Takes a substantial period of time to prepare for intended use or sale•Not routinely manufactured inventories (repetitive over short period)
Qualifying Asset
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Borrowing costs
Interest on
loans & overdra
fts
Discounts &
premiums
Ancillary
arrangement costs
Finance charges
on leases
Exchange
differences on interest costs
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Examples of qualifying assets
Inventories
Power generati
on facilities
Manufacturing plants
Investment
properties
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Benchmark Treatment
Recognise as expense in period incurred
Regardless of how borrowings applied
Disclose Accounting Policy adopted for borrowing costs
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Allowed alternative treatment
Recognise as expense in period incurred
Except to the extent where they are capitalised
Disclose accounting policy
Directly attributable to
acquisition, construction or
production
Qualifying asset
Capitalise borrowin
g cost as
part of
cost of
asset
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Recognition of borrowing costs as part of asset
It is probable they will result in future economic benefits
The costs can be measured reliabily
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Borrowing costs eligible for capitalisation
Directly attributable to acquisition,
construction or production of specific
asset
Avoided if qualifying asset
not acquired
Specific borrowings
easy to identify
Judgement required when use of loan difficult to
identify
Group loans difficult to link
to assets
Centrally controlled loans more difficult to
link to assets
Capitalise actual interest incurred less
income from temporary investment of funds
borrowed
Use capitalisation rate to calculate
applicable interest on general loans
Weighted average of borrowing costs
outstanding during period (group or entity
borrowings)
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Commencement of capitalisation Expenditure incurred on asset
Cash payments, assets transferred, interest bearing liabilities assumed
Less progress payments and grants received Borrowing costs incurred
Use carrying amount of asset to apply capitalisation rate
Activities in progress to prepare asset for intended use or sale Include technical and admin costs prior to
construction Exclude asset ready for use but not in production
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Suspension of capitalisation Extended periods in which active
development is interrupted Activities necessary to prepare asset for
intended use or sale Not when technical or admin work being
carried out (e.g. applying for permits) Excludes temporary delays
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Cessation of capitalisation Substantially all activities necessary
to prepare the asset for intended use are complete Physical construction complete Minor modification my be outstanding
Or each part of that asset, if capable of being used separately E.g. business park with several buildings
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Disclosure
Accounting PolicyAmount
capitalised during the period
Capitalisation rate to determine
amount eligible for capitalisation
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Transitional Provisions
Change in
Accounting Policy
IAS8
Alternatively, borrowing
costs incurred after 1
January 1995
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Summary
Borrowing costs are expensed as incurred Borrowing costs incurred as part of construction of
assets over a period of time may be capitalised as part of the cost of the asset if it is a qualifying asset
Borrowing costs on general loans may be capitalised if allocated to assets on a weighted average interest cost on the outstanding balance relating to the carrying amount of the asset
The accounting policy and rate used to calculate capitalised borrowing costs must be disclosed
The amount of borrowing costs capitalised and expensed must be disclosed
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