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INTERNATIONAL ACCOUNTING STANDARD 23
BORROWING COSTS
Definition:
"Borrowing costs" are interest and other costs that an entity incurs in connection with the borrowing of funds.
Types of borrowing costs:
- To be capitalised:
- directly attribuatble to
- the acquisition, construction or production
- of a "Qualifying Asset (QA*)"
- To be Expensed:
- other than above
* Qualifying Assets (QA):
- takes a substantial period of time
- to get ready
- for its intended use or sale
IAS 23 not applicable to:
- Cost of equity:
- actual or imputed (including preferred capital not classified as a liability) - A qualifying asset:
- measured at fair value (e.g. a biological asset) - Inventories:
- that are manufactured, or otherwise produced,
- in large quantities
- on a repetitive basis
RULES OF CAPITALISATION:
- Conditions:
- it is probable
- that costs incurred will result in future economic benefits to the entity
- and the costs can be measured reliably
- Commencement from date when following all conditions are met:
- expenditures is incurred for the asset,
- it incurres Borrowing Cost; and
- it undertakes activities that are necessary to prepare the asset for its intended use or sale.
- Suspension of capitalisation:
- when active development of a QA* is suspended .
- Suspension of active development excludes:
- - - carying out of substantial technical and administrative work
- - - temporary delay that is a necessary part of the development of QA*
- Cessation of capitalisation:
- substantially all the activities of development of QA* are complete
- if development of QA* is in parts, then each part is treated as QA*
DISCLOSURE:
The amount of borrowing costs capitalised during the period; andThe capitalisation rate used to determine the amount of borrowing costs eligible for capitalisation.
