IAS 23 Borrowing Costs – Summary with Examples – PDF



The objective of IAS 23 is to prescribe the accounting treatment for borrowing costs. IAS 23 Borrowing Costs requires that borrowing costs directly
IAS 23 Borrowing Costs

IAS Standards

IAS 2 Inventories       

IAS 7 Statements of cash flows

IAS 7 Statement of cash flows  – Revisited

IAS 8 Accounting policies, changes in accounting estimates, and errors

IAS 10 Events after the reporting period       

IAS 12 Income taxes 

IAS 16 Property, plant and equipment          

IAS 17 Leases

IAS 19 Employee benefits     

IAS 20 Accounting for government grants and disclosure of government assistance          

IAS 21 The effects of changes in foreign exchange rates     

IAS 23 Borrowing costs        

IAS 24 Related party disclosures

IAS 27 Consolidated and separate financial statements        

IAS 28 Investments in associates and joint ventures 

IAS 32 Financial instruments: presentation  

IAS 33 Earnings per share

IAS 33 Earnings per share – Revisited          

IAS 36 Impairment of assets 

IAS 37 Provisions, contingent liabilities and contingent assets        

IAS 38 Intangible assets

IAS 40 Investment property

IFRS Standards

IFRS 3 Business combinations    

IFRS 5 Non-current assets held for sale and discontinued operations    

IFRS 7 Financial instruments: disclosures          

IFRS 8 Operating segments         

IFRS 9 Financial instruments      

IFRS 10 Consolidated financial statements        

IFRS 11 Joint arrangements         

IFRS 12 Disclosure of interests in other entities 

IFRS 13 Fair value measurement 

IFRS 15 Revenues from contracts with customers          

IFRS 16 Leases

IAS 17 VS IFRS 16 Lease – Differences

Ratio Analysis

IAS 23 Borrowing Costs Overview

IAS 23 prescribes the accounting treatment for borrowing costs.

Borrowing costs are interests and other cost that an entity incurs in connection with borrowing of fund.

  • Borrowing cost includes:
    Interest expense.
  • Finance charges in respect of IFRS-16/IAS-17 Leases.
  • Exchange difference from foreign currency borrowing.

Tackle IAS 23 in TWO simple steps

  1. Identifying the Qualifying asset.
  2. Accounting for the Borrowing costs from funds used for Qualifying asset.

Step 1: Identifying the Qualifying asset

Qualifying Asset

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  • A qualifying asset is an asset that necessarily takes a substantial period of time to get ready for its intended use or sale.

Example of Qualifying Assets

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Substantial period of time to get ready.

IAS 23 borrowing costs examples:

  • Inventories.
  • Manufacturing Plants.
  • Power generation facilities.
  • Intangible Assets.
  • Investment.

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Example of non-Qualifying Assets

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Short period of time to get ready.

  • Financial assets and inventories manufactured or otherwise produced over a short period of time.
  • Asset that are ready for their intended use/sale when acquired.

Borrowing cost directly attributable of acquisition, construction or production of Qualifying asset are capitalized as part of cost, when probable that they will results in future benefit.

Step 2: Accounting for the Borrowing costs from funds used for Qualifying asset

Funds used for Qualifying Assets

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Specific Borrowing

Specific Borrowing may be invested temporarily, which arises interest income.

Cost to be Capitalized?

  • The actual Borrowing costs are to be capitalized incurred on that borrowing during the period (less) any investment income on temporary investment of those borrowing.

General Borrowing

Cost to be Capitalized?

When general borrowings are used the amount of borrowing costs eligible for capitalization is obtained by applying a capitalization rate to the expenditure of that asset.

Capitalization rate= Total interest (divide-by Total loan)

  • When the carrying amount of qualifying asset exceeds its recoverable amount, the carrying valve is written down to recoverable amount.

Period of Capitalization

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Commencement of Capitalization

The commencement date for capitalization is the date when entity first meets ALL of the following conditions:

  • It incurs expenditure for the asset.
  • It incurs Borrowing costs.
  • Activities necessary to prepare the asset have started.

Expenditure on a qualifying asset include only:

  • cash payments.
  • transfer of other asset.
  • interest-bearing liabilities.

Suspension of Capitalization

An entity shall suspend capitalization:

  • During extended period in which it suspends active development of a qualifying asset.
  • holding partially completed assets.

An entity shall not suspend capitalization:

  • when a temporary delay is necessary.
  • entity carries out substantial technical and administrative work.

Cessation of Capitalization

  • Capitalization of borrowing cost should cease when the asset is substantially complete, even though routine administrative work might still continue.
  • when an entity completes the construction of a qualifying asset in parts, the entity will cease capitalization when it completes substantially all activities, even construction continues on the other parts.

IAS 23 pdf

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