IAS 23 summary
Borrowing costs are finance charges that are directly attributable to the acquisition,
construction or production of a qualifying asset that forms part of the cost of the asset.
These costs are capitalized to the cost of the asset. All other borrowing costs that do not
meet these requirements are expensed in the year that they are incurred.
Borrowing costs are interest expense calculated using the effective interest method, finance
charges in respect of finance leases in accordance with IFRS 16 and exchange differences
from foreign currency borrowings, they are regarded as an adjustment to the interest costs.
A qualifying asset is an asset that necessarily takes a substantial period to get ready for its
intended use or sale. Therefore, assets that are manufactured or produced over a short
period of time or are ready for intended use when acquired are not qualifying assets.
Examples of qualifying assets include:
- Inventories
- Manufacturing plants
- Intangible assets
- Investment property
- Power generating units
- Bearer plants
Recognition of borrowing costs
Here it basically just states that borrowing costs are to be capitalized to the cost of a
qualifying asset.
Borrowing costs eligible for capitalization
Two types exist here including:
- Specific borrowings
- General borrowings
Specific borrowings:
Borrowing costs to be capitalized = Actual borrowing costs incurred during the period –
investment income on the temporary investment of those borrowings.
General borrowings:
Borrowing costs to be capitalized = Expenditure of the asset x capitalization rate. The
capitalization rate shall be the weighted average of the borrowing cost applicable to the
borrowings of the entity that are outstanding at the end of the period, excluding the
borrowings made specifically for the purpose of obtaining a qualifying asset.
Commencement, suspension, and cessation
Commencement:
Capitalization of the borrowing costs need to take place on the commencement date, which
is the date when ALL these requirements are met:
- It incurs expenditures for the asset.
- It incurs borrowing costs.
- It undertakes activities that are necessary to prepare the asset for its intended use or sale.
Sebastian van Blommestein
Borrowing costs are finance charges that are directly attributable to the acquisition,
construction or production of a qualifying asset that forms part of the cost of the asset.
These costs are capitalized to the cost of the asset. All other borrowing costs that do not
meet these requirements are expensed in the year that they are incurred.
Borrowing costs are interest expense calculated using the effective interest method, finance
charges in respect of finance leases in accordance with IFRS 16 and exchange differences
from foreign currency borrowings, they are regarded as an adjustment to the interest costs.
A qualifying asset is an asset that necessarily takes a substantial period to get ready for its
intended use or sale. Therefore, assets that are manufactured or produced over a short
period of time or are ready for intended use when acquired are not qualifying assets.
Examples of qualifying assets include:
- Inventories
- Manufacturing plants
- Intangible assets
- Investment property
- Power generating units
- Bearer plants
Recognition of borrowing costs
Here it basically just states that borrowing costs are to be capitalized to the cost of a
qualifying asset.
Borrowing costs eligible for capitalization
Two types exist here including:
- Specific borrowings
- General borrowings
Specific borrowings:
Borrowing costs to be capitalized = Actual borrowing costs incurred during the period –
investment income on the temporary investment of those borrowings.
General borrowings:
Borrowing costs to be capitalized = Expenditure of the asset x capitalization rate. The
capitalization rate shall be the weighted average of the borrowing cost applicable to the
borrowings of the entity that are outstanding at the end of the period, excluding the
borrowings made specifically for the purpose of obtaining a qualifying asset.
Commencement, suspension, and cessation
Commencement:
Capitalization of the borrowing costs need to take place on the commencement date, which
is the date when ALL these requirements are met:
- It incurs expenditures for the asset.
- It incurs borrowing costs.
- It undertakes activities that are necessary to prepare the asset for its intended use or sale.
Sebastian van Blommestein
