Summary IAS 23 Borrowing cost

Study unit 3
Borrowing cost
Definitions
Borrowing cost = interest and other costs that an entity incurs is connection with the borrowing of
funds
Qualifying asset = interest and other costs that an entity incurs is connection with the borrowing of
funds



IAS 23: Borrowing cost Must be CAPITALISED as part of the cost of
Except for 2 scope exclusions, that asset
borrowing costs are directly
attributable to the acquisition, All other borrowing costs are EXPENSED
construction or production of a when they’re incurred
qualifying asset.

Capitalisation
STARTS on COMMENCEMENT DATE ENDS on CESSATION DATE
 Activities started  Substantially ready for use or sale – last
 Borrowing cost incurred day allowed to capitalise borrowing cost
 Expense incurred on preparation of asset
Suspension period – active construction/production is delayed for an extended period of time
 Temporarily seize capitalisation, except if:
 Delay is necessary for production
 Due to substantial technical/admin work

Meeting the definitions



Does not include only interest (finance cost), but also includes other costs incurred in connection
with borrowing funds. May include:
 Interest expense recognised on lease liability
 Interest expense using e ective interest method
 Exchange di erence on foreign loan accounts to the extend that they’re regarded as an
adjustment to the interest in the loan
Excludes:
 Cost of raising share capital recognised as equity
 Dividends on ordinary share capital or non-redeemable preference share
(Dividends on redeemable share capital = capitalised because they’re recognised as a
liability, not as equity)
 Costs of using internal funds