IAS 23 BORROWING COST

BY

Adeel Saleem

Scope
Para 2 of IAS 23 Borrowing Costs sets the scope as
AN ENTITY SHALL APPLY THIS STANDARD IN ACCOUNTING FOR BORROWING COSTS NOT INCLUDING

Imputed or actual COST OF EQUITY, including preferred capital classified as equity

Definitions
Borrowing Cost: Interest and other cost incurred by the entity in connection with borrowing funds.
Qualifying Asset: The asset which necessarily takes a substantial period of time to get ready for its intended use or sale.

What does Borrowing Cost include?

Interest on overdraft , Short term loan, Long term loan. Amortization of discount or premium. Amortization of ancillary cost Finance charge in connection with lease. Exchange rate difference arising from foreign currency borrowing.

BORROWING COSTS

BORROWING COSTS

Qualifying Assets

Other Borrowing Costs

HOW is Borrowing Cost relating to Qualifying Asset Recognised?

QUALIFYING ASSET

Benchmark Treatment

Allowed Alternative

EXPENSE

CAPITALISATION

Specific Borrowings amount to be capitalised

General Borrowings amount to be capitalised

CAPITALISATION RATE into EXPENDITURE incurred
6

BORROWING COSTS less INCOME from investment

When shall Capitalisation Commence?

Expenditure are incurred for the asset

Borrowing Cost are being incurred. Activities that are necessary to construct the asset are in progress.

When to suspend capitalisation?

During extended period in which active development is interrupted
UNLESS

delay is part of the development process

When to cease capitalistion ?

When all the activities necessary to prepare the Qualifying asset for its intended use or sale are complete
When the asset is completed in parts and each part can be used separately then borrowing cost shall cease to capitalise when all the activities to prepare that part of asset are complete
9

Disclosures
Accounting Policy adopted. Amount of Borrowing cost Capitalised during the period. Capitalisation Rate (in case of General Borrowing)

10

IAS 23 REVISED
CHANGES IN IAS 23 BORROWING COSTS Effective January 1, 2009

Exclusion treatment

of

benchmark

Revised IAS 23 provides for compulsory capitalization of borrowing costs incurred in respect of qualifying asset; rest all borrowing costs are recognised as an expense in the period in which they are incurred

11