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IAS 23: Accounting for Borrowing Costs

IAS 23 specifies the accounting treatment for borrowing costs. It allows for borrowing costs directly attributable to qualifying assets, which take substantial time to get ready for use or sale, to either be recognized as an expense or capitalized into the carrying amount of the qualifying asset. Borrowing costs eligible for capitalization cannot exceed borrowing costs incurred in the period, and capitalization ceases when substantially all activities to prepare the asset are complete. Disclosure of the accounting policy for borrowing costs and amounts capitalized is required.

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66 views8 pages

IAS 23: Accounting for Borrowing Costs

IAS 23 specifies the accounting treatment for borrowing costs. It allows for borrowing costs directly attributable to qualifying assets, which take substantial time to get ready for use or sale, to either be recognized as an expense or capitalized into the carrying amount of the qualifying asset. Borrowing costs eligible for capitalization cannot exceed borrowing costs incurred in the period, and capitalization ceases when substantially all activities to prepare the asset are complete. Disclosure of the accounting policy for borrowing costs and amounts capitalized is required.

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Mia Casas
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.

International Accounting

Standards

IAS 23 Borrowing Costs (rev 1993)

1
Objective and Scope
– To specify accounting treatment for
borrowing costs
– Does not deal with imputed cost of
equity

2
IAS 23 Borrowing Costs
Borrowing costs
– Interest and other costs incurred in connection
with the borrowing of funds
Qualifying asset
– An asset that necessarily takes a substantial
period of time to get ready for intended use or
sale

3
IAS 23 Borrowing Costs
Benchmark treatment
– Recognize as expense
Allowed alternative
– Expense, except to extent directly attributable
to the acquisition, construction or production
of a qualifying asset
– Capitalize into carrying amount of that
qualifying asset

4
Eligible borrowing costs
– To extent funds directly attributable, actual
costs less any investment income on
temporary investment of borrowings
– To extent funds are borrowed generally, apply
the capitalization rate
– Capitalization rate = weighted average of the
borrowing costs outstanding during the period
– Amount to be capitalized cannot exceed
borrowing costs incurred in period

5
IAS 23 Borrowing Costs
Commencement of capitalization
– Expenditures on asset being incurred
– Borrowing costs are being incurred
– Activities necessary to prepare asset for its
intended use or sale are in progress
Suspension
– During extended periods when active
development is interrupted.

6
Cessation
– When substantially all activities
necessary to prepare asset for its
intended use or sale are complete
– Same applies if asset completed in parts

7
Disclosure
– Accounting policy for borrowing costs
– Amount of borrowing costs capitalized
during period
– Capitalization rate used to determine
amount of borrowing costs eligible for
capitalization

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