IAS 23 - Borrowing Costs

Cost incurred for borrowing including the

Interest costs and Exchange of Foreign
currency borrowing

FROM Later of TO - Earlier of

Period of Types of Commencement date of Capitalization Cessation Date of Capitalization
Treatment of or or
Borrowing Cost capitalization Borrowing
year of beginning Year End

Calculation of
Commencement of Borrowing costs
Borrowing for Here Months will be
capitalization of Cessation of
Acquisition of Otherwise Specific Borrowings General Borrowings
Borrowing should be capitalization
Qualifying Asset
later of
Specific borrowing
Actual Interest cost incurred on
(X)
Step - 1 specific borrowing irrespective of
Interest rate
Specific Borrowing Cost expenses being incurred on
(X)
Capitalize the same to Recognize as an 1. Loan Taken qualifying asset on different dates
Should cease when Amount borrowed All other borrowings (Months/12)
the cost of the asset expense in P&L 2. Development Activities on the asset
asset is ready for its specifically for acquisition which can be used for
have been started
intended use or construction of asset any other purpose
3. Expenses are incurred on the asset
need to reduce the Interest income
on temporary investment of these
Specific Borrowing
Qualifying Asset

If entity is completing Total Actual Interest on all general

construction of Asset in borrowings
parts & each part can Step - 2 Calculate Capitalization rate
/
Note: If entity pauses development work for be separately used General Borrowing Cost (Weighted Average Borrowing rate)
Asset which takes Total Amount of general borrowings
any unnecessary reason, then capitalization weighted average on a time basis
substantial period to
will be suspended for that period
get ready for its
intended use or sale
Capitalization should Expenses incurred on Qualifying Asset
stop on completed (x)
Calculate eligible general
parts basis Step - 3 Capitalization rate
borrowing cost
Total Borrowing cost (x)
Substantial period is = Step 1 + Step 2 (Months/12)
not defined. Based on
judgement

Here Months will be

Calculate general
borrowing cost

Lower of :
Eligible general borrowing FROM Later of
or Commencement date of Capitalization
Total Actual Interest or
Respective expenses incurred date
or
year Beginning

Note: (i) Expenses incurred should be on TO - Earlier of

Actual Cash outflow basis Cessation Date of Capitalization
(ii) borrowing cost already capitalizaed till PY or
should also be considered as an expense on Year End
Qualifying Asset for calculation of Eligible
general borrowing cost