IAS 23 ( Borrowing Cost)

Question 1

Borrowing Cost?

Answer 1

are interest and other costs that an entity incurs in connection with the borrowing of fund

Question 2

Examples of Borrowing cost?

Answer 2

1. interest expense (calculated using effective interest method),
   2.loan processing fee
   3.commissions,
   4., documentation charges
2. legal charges relating to borrowing of fund
   6.. Exchange differences on foreign currency borrowings

Question 3

IAS 23 excludes?

Answer 3

IAS 23 does not deal with the actual or imputed cost of equity (including preferred share capital not classified as
liability), therefore, dividend paid to equity-holders of an entity is not a borrowing cost.

Question 4

Qualifying asset?

Answer 4

A qualifying asset is an asset that necessarily takes a substantial period of time to get ready for its intended use
or sale.
Qualifying assets are usually self-constructed non-current assets and long maturing inventories. Depending on
the circumstances, any of the following may be qualifying assets:
 inventories (IAS 2)
 manufacturing plants (IAS 16)
 power generation facilities (IAS 16)
 intangible assets (IAS 38)
 investment properties (IAS 40)

Question 5

Recognisition Rule

Answer 5

Borrowing costs directly attributable to the acquisition,
construction or production of a qualifying asset.
Such borrowing costs are capitalised as part of the cost of the asset when:
 it is probable that they will result in future economic benefits to the
entity; and
 the costs can be measured reliably

Question 6

Types of borrowing

Answer 6

1.Specific
2.General

Question 7

Specific borrowings ?

Answer 7

Specific borrowings are funds borrowed specifically for the purpose of obtaining a qualifying asset.

Question 8

General Borrowings?

Answer 8

General borrowings are funds borrowed generally and use them for the purpose of obtaining/construction of a
qualifying asset or for other operating needs.

. The amount of borrowing costs that an entity capitalises during a period shall
not exceed the amount of borrowing costs it incurred during that period

Question 9

Capitalization Rate

Answer 9

The capitalisation rate shall be the weighted average of the borrowing costs applicable to all borrowings (other
than specific borrowings) of the entity that are outstanding during the period.
𝑪𝒂𝒑𝒊𝒕𝒂𝒍𝒊𝒔𝒂𝒕𝒊𝒐𝒏 𝒓𝒂𝒕𝒆 =
𝐵𝑜𝑟𝑟𝑜𝑤𝑖𝑛𝑔 𝑐𝑜𝑠𝑡𝑠 𝑖𝑛𝑐𝑢𝑟𝑟𝑒𝑑/
𝑊𝑒𝑖𝑔ℎ𝑡𝑒𝑑 𝑎𝑣𝑒𝑟𝑎𝑔𝑒 𝑔𝑒𝑛𝑒𝑟𝑎𝑙 𝑏𝑜𝑟𝑟𝑜𝑤𝑖𝑛𝑔𝑠 = %

Question 10

Commencement ?

Answer 10

The commencement date for capitalisation is the date when the entity first meets all of the following conditions:
 it incurs expenditures (resulted in payment of cash or transfer of other assets) for the asset;
 it incurs borrowing costs; and
 it undertakes activities that are necessary to prepare the asset for its intended use or sale.

Question 11

Suspension Period

Answer 11

An entity shall suspend capitalisation of borrowing costs during extended periods in which it suspends active
development of a qualifying asset.

Question 12

cease ?

Answer 12

An entity shall cease capitalising borrowing costs when substantially all the activities necessary to prepare the
qualifying asset for its intended use or sale are complete. An asset is normally ready for its intended use or sale
when the physical construction of the asset is complete even though routine administrative work might still
continue.

Question 13

Expenditure on qualifying asset?

Answer 13

Expenditures on a qualifying asset include only those expenditures that have resulted in payments of cash or
transfers of other assets.

Question 14

Expenditures are reduced by?

Answer 14

Expenditures are reduced by:
 any progress payments received; and
 grants received in connection with the asset.

Question 15

Disclouser requirement?

Answer 15

An entity shall disclose:
 the amount of borrowing costs capitalised during the period; and
 the capitalisation rate used to determine the amount of borrowing costs eligible for capitalisation