IAS 23- Borrowing Costs

Question 1

Core Principle

Answer 1

Borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset form part of the cost of that asset. Other borrowing costs are recognised as an expense.

Question 2

Scope

Answer 2

Summary:

• It does not cover the cost of equity.
• Borrowing costs related to qualifying assets measured at fair value or inventories produced in large quantities on a repetitive basis are exempt from this standard.

Question 3

What is a qualifying asset?

Answer 3

A qualifying asset is one that takes a substantial time to be ready for its intended use or sale.

Question 4

What qualifies as a borrowing cost?

Answer 4

• interest expense,
• lease interest, and
• exchange differences from foreign currency borrowings

Question 5

Examples of qualifying assets

Answer 5

inventories, manufacturing plants, intangible assets, investment properties, and bearer plants,

but not financial assets or inventories produced over a short period or already ready for use.

Question 6

How is the amount of borrowing costs determined?

Answer 6

Based on actual borrowing costs or a capitalization rate.

Question 7

When does capitalisation begin?

Answer 7

when the entity incurs expenditures for the asset, incurs borrowing costs, and undertakes necessary activities for its intended use or sale.

Capitalization is suspended during extended periods of inactivity or suspension of active development of a qualifying asset.

Question 8

When does capitalisation end?

Answer 8

when substantially all activities necessary for the asset’s use or sale are complete, even if minor modifications or administrative work remain outstanding.

Question 9

Disclosures

Answer 9

(a)

the amount of borrowing costs capitalised during the period; and

(b)

the capitalisation rate used to determine the amount of borrowing costs eligible for capitalisation.