7/17/2019 IAS 23

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IAS 2IAS 23 Borrowing Costs requires that borrowing costs directly attributable tothe acquisition, construction or production of a 'qualifying asset' (one thatnecessarily takes a substantial period of time to get ready for its intended use orsale are included in the cost of the asset! "ther borrowing costs are recognisedas an e#pense!IAS 23 was reissued in $arch 2%%& and applies to annual periods beginning on orafter anuary 2%%)!

Related Interpretations

• SI*+2 Consistency – Capitalisation of Borrowing Costs! SIC-2 wassuperseded by and incorporated into IAS 8 in December 2003.

Amendments under consideration by the IAS

• one

Summary o! IAS 23

"b#ecti$e o! IAS 23 -he ob.ecti/e of IAS 23 is to prescribe the accounting treatment for borrowingcosts! 0orrowing costs include interest on bank o/erdrafts and borrowings,amortisation of discounts or premiums on borrowings, 1nance charges on 1nanceleases and e#change dierences on foreign currency borrowings where they areregarded as an ad.ustment to interest costs!

%ey de&nitionsorrowin' cost may include 4IAS 23!56

• interest e#pense calculated by the eecti/e interest method under IAS3),

• 1nance charges in respect of 1nance leases recognised in accordancewith IAS & 7eases, and

• e#change dierences arising from foreign currency borrowings to thee#tent that they are regarded as an ad.ustment to interest costs

 -his standard does not deal with the actual or imputed cost of equity, includingany preferred capital not classi1ed as a liability pursuant to IAS 32! 4IAS 23!36

A (uali!yin' asset is an asset that takes a substantial period of time to getready for its intended use or sale! 4IAS 23!86 -hat could be property, plant, andequipment and in/estment property during the construction period, intangibleassets during the de/elopment period, or 9made+to+order9 in/entories! 4IAS 23!56

Scope o! IAS 23 -wo types of assets that would otherwise be qualifying assets are e#cluded fromthe scope of IAS 23

• qualifying assets measured at fair /alue, such as biological assetsaccounted for under IAS : Agriculture

• in/entories that are manufactured, or otherwise produced, in large

quantities on a repetiti/e basis and that take a substantial period to getready for sale (for e#ample, maturing whisky

7/17/2019 IAS 23

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Accountin' treatmentReco'nition0orrowing costs that are directly attributable to the acquisition, construction orproduction of a qualifying asset form part of the cost of that asset and, therefore,should be capitalised! "ther borrowing costs are recognised as an e#pense! 4IAS

23!;6

)easurement<here funds are borrowed speci1cally, costs eligible for capitalisation are theactual costs incurred less any income earned on the temporary in/estment ofsuch borrowings! 4IAS 23!26 <here funds are part of a general pool, the eligibleamount is determined by applying a capitalisation rate to the e#penditure onthat asset! -he capitalisation rate will be the weighted a/erage of the borrowingcosts applicable to the general pool! 4IAS 23!:6

*apitalisation should commence when e#penditures are being incurred,borrowing costs are being incurred and acti/ities that are necessary to prepare

the asset for its intended use or sale are in progress (may include some acti/itiesprior to commencement of physical production! 4IAS 23!&+;6 *apitalisationshould be suspended during periods in which acti/e de/elopment is interrupted!4IAS 23!2%6 *apitalisation should cease when substantially all of the acti/itiesnecessary to prepare the asset for its intended use or sale are complete! 4IAS23!226 If only minor modi1cations are outstanding, this indicates thatsubstantially all of the acti/ities are complete! 4IAS 23!236

<here construction is completed in stages, which can be used while constructionof the other parts continues, capitalisation of attributable borrowing costs shouldcease when substantially all of the acti/ities necessary to prepare that part forits intended use or sale are complete! 4IAS 23!2:6

Disclosure *IAS 23.2+,• amount of borrowing cost capitalised during the period

• capitalisation rate used

  Any interest incurred during January 20X5 may not be capitalised because construction had not yet   beg. Any

interest incurred after 30 November 20X5 may not be capitalised because construction is  complete.

Interest earned during construction is the only interest e consider in this calculation.

Interest incurred during construction 3!5 "33#ess investment income earned during construction $%&0 000'

(osts capitalised

Capitalisation rate (weighted average rate of interest):

1) Since the interest is payable at year-end, the interest incurred is not included in the ‘payments column! "n other words, interest is effectively not compounded during the year!

 #verage costs

 "nterest eligible for capitalisation:

average cumulative e$penditure