Ind AS 23

Borrowing Costs

CMA Raman Khanna

khanna1975@yahoo.co.in
CORE PRINCIPLE

Borrowing Costs
which are

ACQUISITION
directly of a and form
ATTRIBUTABLE CONSTRUCTION QUALIFYING part of cost
to ASSETS of the asset
PRODUCTION

NOT directly Recognized as

ATTRIBUTABLE an EXPENSE
 SCOPE

Deal with ACCOUNTING of borrowing costs (BC)

Does not deal with Actual / Imputed cost of equity

scope

Standard not applicable if BC directly attributable to ACQUISITION

/ CONSTRUCTION / PRODUCTION of:
1) QUALIFYING ASSET measured on fair value
2) INVENTORIES manufactured / produced in large quantities on a repetitive basis.
INCLUSIONS

Borrowing
costs may
include

INTEREST FINANCE EXCHANGE

EXPENSE CHARGES DIFFERENCES

in respect of arising from foreign

currency borrowings to the
Finance Lease
extent that they are
regarded as an adjustment
to interest cost
INCLUSIONS – EXCHANGE DIFFERENCES

Exchange differences part of BC to the extent of

 Exchange LOSS which does not exceed

 The DIFFERENCE between

1. COST of borrowings in Functional Currency and

2. COST of borrowings in Foreign Currency

 On Settlement / Translation of borrowings in future - In case of a realized

or unrealized gain, the gain to the extent of loss previously recognized as
an ADJUSTMENT (as above) should be recognized as an adjustment to
interest.
INCLUSIONS – EXCHANGE DIFFERENCES (EXAMPLE)

Date Activity USD INR / USD Amount Rs.

01/01/2017 Loan taken 10000 65 6,50,000
31/12/2017 Exchange loss 10000 68 6,80,000 30,000
31/12/2017 Interest Obligation (Foreign Currency) @ 5% (B) 10000 68 6,80,000 34,000
31/12/2017 TOTAL of Exchange Loss + Interest 64,000
01/01/2017 Interest Obligation (Functional Currency) @ 8% (A) 10000 65 6,50,000 52,000

Difference between Functional (Local) Currency

18,000
Borrowings and Foreign Currency Borrowings (A - B)
1) Hence Exchange Loss of Rs. 30,000 shall be capitalized to the extent of Rs. 18,000, which is the difference
between borrowings in local currency and borrowings in foreign currency.

2) Balance Rs. 12,000/- shall be considered as foreign exchange loss in P&L

ASSETS WHICH ARE QUALIFYING ASSETS

INVENTORIES

MANUFACTURING PLANTS
QUALIFYING
ASSET POWER GENERATION FACILITIES
may be
INTANGIBLE ASSETS

INVESTMENTS PROPERTIES
ASSETS WHICH ARE NOT QUALIFYING ASSETS

FINANCIAL ASSETS

INVENTORIES
Following are not - manufactured / produced over a short
Qualifying Assets period of time

ASSETS
- ready for their intended use / sale
when acquired
RECOGNITION

BC DIRECTLY attributable to
the Acquisition,
Other BC shall be recognized
construction or Production
as an Expense in the period
of QA shall be CAPITALISED
in which they are incurred
as part of the cost of that
asset.

BC are capitalized when it is

probable that they will result in
future economic benefits and costs
can be measured reliably
MEASUREMENT – BC ELIGIBLE FOR CAPITALISATION

If funds are borrowed SPECIFICALLY for If funds are borrowed GENERALLY and
the purpose of obtaining a QA used for the purpose of obtaining a QA

1) ACTUAL BC incurred on that 1) BC determined by applying a

borrowing during the period CAPITALISATION RATE to the expenditure
LESS on that asset.
2) any income on temporary investment Capitalization Rate is the WEIGHTED
of those borrowings AVERAGE of the BC of the entity that are
outstanding during the period, OTHER
than Borrowings made SPECIFICALLY for
the purpose of obtaining a QA.

Amount of BC Capitalized during a period shall NOT EXCEED the

ACTUAL amount of BC incurred during that period
IMPARIMENT

If the Carrying Expected ultimate

or
Amount of QA cost of QA

EXCEEDS

its Recoverable Net Realizable Value

or
Amount (NRV)

Then Carrying Amount is WRITE-DOWN / WRITE-OFF in

accordance with the requirement of other standards

In certain circumstances, amount write-down / write-off is

WRITTEN BACK in accordance with other standards
COMMENCEMENT, SUSPENSION & CESSATION OF CAPITALISATION

COMMENCEMENT CESSATION SUSPENSION

Meet all the following Capitalization of BC is An entity shall cease

conditions: suspended during capitalizing BC, when:
extended periods
1. Incurred expenditure in which active • Substantially
for the asset • all the activities
development of qualifying
asset is suspended. necessary to prepare
2. Incurred borrowing the asset for its
costs intended use / sale
3. Undertakes activities • are complete.
to prepare the asset
for its intended use /
sale
COMPLETION OF QUALIFYING ASSET IN PARTS

COMPLETION IN PARTS

When an entity

• completes the construction of a qualifying asset in parts

• and each part is capable of being used while construction

continues on other parts,

• the entity shall cease capitalizing borrowing costs when it

completes substantially all the activities necessary to
prepare that part for its intended use / sale
DISCLOSURE

• Amount of Borrowing cost

Amount capitalized during the
period.

• Capitalisation Rate used to

Rate determine the amount of
BC eligible for capitalisation
The ppt is prepared with an effort to simplify the contents and strengthen understanding and is meant
to share the knowledge with professional colleagues, students, academicians and interested public.

For any feedbacks, suggestions please drop an e-mail @ khanna1975@yahoo.co.in