IAS 23 Borrowing Costs
Treatment-
➢ It regulates the extent to which entities are allowed to capitalise borrowing
costs incurred on money borrowed to finance the acquisition of certain
assets.
➢ It must be capitalised as part of the cost of an asset if that asset is
qualifying asset.
Commencement of capitalised-
IAS 23 states that capitalisation of borrowing costs should commence when all of
the following conditions are met:
➢ Expenditure for the asset is being incurred
➢ Borrowing costs are being incurred
➢ Activities that are necessary to prepare the asset for its intended use or sale
are in progress
The rate of interest to be taken-
➢ Where funds are borrowed specifically to acquire a qualifying asset.
➢ Borrowing costs which may be capitalised are actually incurred and less
any investment income on the temporary investment of the borrowings
during the capitalisation period.
➢ Where funds for the project are taken from general borrowings the weighted
average cost of general borrowings is taken.
Cessation of capitalisation-
Capitalisation of borrowing costs should cease when either:
➢ Substantially all the activities necessary to prepare the qualifying asset for
its intended use or sale are complete.
➢ Construction is suspended e.g. due to industrial disputes.
