Borrowing cost may include: [IAS 23.

6]
a) interest expense calculated by the effective interest method under IAS 39,
b) finance charges in respect of finance leases recognised in accordance with IAS 17 Leases, and
c) exchange differences arising from foreign currency borrowings to the extent that they are regarded as an
adjustment to interest costs
This standard does not deal with the actual or imputed cost of equity, including any preferred capital
not classified as a liability pursuant to IAS 32. [IAS 23.3]
A qualifying asset is an asset that takes a substantial period of time to get ready for its intended use or
sale. [IAS 23.5] That could be property, plant, and equipment and investment property during the
construction period, intangible assets during the development period, or "made-to-order" inventories.
[IAS 23.6]

These questions help you recognize your existing background Yes No

knowledge on the topic. Answer honestly.
Do the standard definitions given above match your personal
definitions for borrowing costs?
Can you identify borrowing costs from other types of costs?
Have you read the standard for measuring borrowing costs?
Have you read the standard for presentation and disclosure of
borrowing costs?
Total (Raw Score)

Borrowing costs (IAS 23) - ACCA (SBR) lectures by Silvia of OpenTuition.

View at: https://www.youtube.com/watch?v=zq4lu_tYIgQ

IAS 23 — Borrowing Costs

Scope of IAS 23
Two types of assets that would otherwise be qualifying assets are excluded from the scope of IAS 23:
 qualifying assets measured at fair value, such as biological assets accounted for under IAS 41
Agriculture

 inventories that are manufactured, or otherwise produced, in large quantities on a repetitive basis and
that take a substantial period to get ready for sale (for example, maturing whisky)
Accounting treatment
Recognition
Borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying
asset form part of the cost of that asset and, therefore, should be capitalised. Other borrowing costs are
recognised as an expense. [IAS 23.8]
Measurement
Where funds are borrowed specifically, costs eligible for capitalisation are the actual costs incurred less any
income earned on the temporary investment of such borrowings. [IAS 23.12] Where funds are part of a general
pool, the eligible amount is determined by applying a capitalisation rate to the expenditure on that asset. The
capitalisation rate will be the weighted average of the borrowing costs applicable to the general pool. [IAS
23.14]
Capitalisation should commence when expenditures are being incurred, borrowing costs are being incurred
and activities that are necessary to prepare the asset for its intended use or sale are in progress (may include
some activities prior to commencement of physical production). [IAS 23.17-18] Capitalisation should be
suspended during periods in which active development is interrupted. [IAS 23.20] Capitalisation should cease
when substantially all of the activities necessary to prepare the asset for its intended use or sale are complete.
[IAS 23.22] If only minor modifications are outstanding, this indicates that substantially all of the activities
are complete. [IAS 23.23]
Where construction is completed in stages, which can be used while construction of the other parts continues,
capitalisation of attributable borrowing costs should cease when substantially all of the activities necessary to
prepare that part for its intended use or sale are complete. [IAS 23.24]
Disclosure [IAS 23.26]
 amount of borrowing cost capitalised during the period
 capitalisation rate used

5.1
1. On January 1, 2018, Soho Co. took out a loan of P26 million in order to finance the renovation of a building. The
renovation started on the same date. The loan carried interest at 10%. Work on the building was substantially
complete on October 31, 2018. The loan was repaid on December 31, 2018 and P180,000 investment income was
earned in the period to October 31 on those parts of the loan not yet used for the renovation. What is the total
amount of borrowing costs to be included in the cost of the building?
2. Osc Co. started construction of a new office building on January 1, 2018, and moved into the finished building on
July 1, 2019. Of the building’s P5,000,000 total cost, P4,000,000 was incurred in 2018 evenly throughout the year.
Osc’s incremental borrowing rate was 12% throughout 2018, and the total amount of interest incurred by Osc
during 2018 was P204,000. What amount should Osc report as capitalized interest at December 31, 2018?
3. Sagi Co. started construction on a building on January 1 of this year and completed construction on December
31of the same year. Sagi had only 2 interest notes outstanding during the year, and both of these notes were
outstanding for all 12 months of the year. The following information is available:
Average accumulated expenditures P250,000
Ending balance in construction in progress before capitalization of interest 360,000
6% note incurred specifically for the project 150,000
9% long-term note 500,000
Compute for the amount of interest that Sagi should capitalize for the current year.

Determine whether these statements relate to you. Answer Yes No

honestly to check your progress.
I am able to define borrowing costs and related terms.
I can identify borrowing costs from other types of assets.
I understand the measuring standard for borrowing costs.
I can determine the presentation and disclosure requirements for
borrowing costs.
Total (Raw Score)