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IAS 23 BORROWING COSTS 06/13/2022 1 IAS 23 Borrowing Costs

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Page 1: Ias 23 Borrowing Costs

05/03/2023IAS 23 Borrowing Costs 1

IAS 23

BORROWING COSTS

Page 2: Ias 23 Borrowing Costs

05/03/2023IAS 23 Borrowing Costs 2

Objective

Prescribe accounting treatment of borrowing costs

Immediately expense borrowing costs

Capitalise borrowing costs under allowed alternative treatment

Page 3: Ias 23 Borrowing Costs

05/03/2023IAS 23 Borrowing Costs 3

Definitions

•Interest and other costs incurred as a result of borrowing funds

Borrowing costs

•Takes a substantial period of time to prepare for intended use or sale•Not routinely manufactured inventories (repetitive over short period)

Qualifying Asset

Page 4: Ias 23 Borrowing Costs

05/03/2023IAS 23 Borrowing Costs 4

Borrowing costs

Interest on

loans & overdra

fts

Discounts &

premiums

Ancillary

arrangement costs

Finance charges

on leases

Exchange

differences on interest costs

Page 5: Ias 23 Borrowing Costs

05/03/2023IAS 23 Borrowing Costs 5

Examples of qualifying assets

Inventories

Power generati

on facilities

Manufacturing plants

Investment

properties

Page 6: Ias 23 Borrowing Costs

05/03/2023IAS 23 Borrowing Costs 6

Benchmark Treatment

Recognise as expense in period incurred

Regardless of how borrowings applied

Disclose Accounting Policy adopted for borrowing costs

Page 7: Ias 23 Borrowing Costs

05/03/2023IAS 23 Borrowing Costs 7

Allowed alternative treatment

Recognise as expense in period incurred

Except to the extent where they are capitalised

Disclose accounting policy

Directly attributable to

acquisition, construction or

production

Qualifying asset

Capitalise borrowin

g cost as

part of

cost of

asset

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05/03/2023IAS 23 Borrowing Costs 8

Recognition of borrowing costs as part of asset

It is probable they will result in future economic benefits

The costs can be measured reliabily

Page 9: Ias 23 Borrowing Costs

05/03/2023IAS 23 Borrowing Costs 9

Borrowing costs eligible for capitalisation

Directly attributable to acquisition,

construction or production of specific

asset

Avoided if qualifying asset

not acquired

Specific borrowings

easy to identify

Judgement required when use of loan difficult to

identify

Group loans difficult to link

to assets

Centrally controlled loans more difficult to

link to assets

Capitalise actual interest incurred less

income from temporary investment of funds

borrowed

Use capitalisation rate to calculate

applicable interest on general loans

Weighted average of borrowing costs

outstanding during period (group or entity

borrowings)

Page 10: Ias 23 Borrowing Costs

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Commencement of capitalisation Expenditure incurred on asset

Cash payments, assets transferred, interest bearing liabilities assumed

Less progress payments and grants received Borrowing costs incurred

Use carrying amount of asset to apply capitalisation rate

Activities in progress to prepare asset for intended use or sale Include technical and admin costs prior to

construction Exclude asset ready for use but not in production

Page 11: Ias 23 Borrowing Costs

05/03/2023IAS 23 Borrowing Costs 11

Suspension of capitalisation Extended periods in which active

development is interrupted Activities necessary to prepare asset for

intended use or sale Not when technical or admin work being

carried out (e.g. applying for permits) Excludes temporary delays

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Cessation of capitalisation Substantially all activities necessary

to prepare the asset for intended use are complete Physical construction complete Minor modification my be outstanding

Or each part of that asset, if capable of being used separately E.g. business park with several buildings

Page 13: Ias 23 Borrowing Costs

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Disclosure

Accounting PolicyAmount

capitalised during the period

Capitalisation rate to determine

amount eligible for capitalisation

Page 14: Ias 23 Borrowing Costs

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Transitional Provisions

Change in

Accounting Policy

IAS8

Alternatively, borrowing

costs incurred after 1

January 1995

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05/03/2023IAS 23 Borrowing Costs 15

Summary

Borrowing costs are expensed as incurred Borrowing costs incurred as part of construction of

assets over a period of time may be capitalised as part of the cost of the asset if it is a qualifying asset

Borrowing costs on general loans may be capitalised if allocated to assets on a weighted average interest cost on the outstanding balance relating to the carrying amount of the asset

The accounting policy and rate used to calculate capitalised borrowing costs must be disclosed

The amount of borrowing costs capitalised and expensed must be disclosed


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