Index page

Scope and assessment criteria

BORROWING Definitions
COSTS Nature of borrowing costs
Recognition
Determination of capitalisation period
Disclosure
IAS 23

OUTCOME & ASSESSMENT Interaction

CRITERIA Click the Interaction button to edit this object
Outcome:
You should be able to understand, explain and disclose all aspects relating to
borrowing costs.

Assessment criteria:
In order to achieve the specific outcome, you should be able to: Tax
implica‐
– explain and interpret the definitions of IAS 23;
tions can
– explain the criteria for the capitalisation of borrowing costs; be ignored
– apply the principles relating to the capitalisation of borrowing costs; and
– apply the disclosure requirements of IAS 23
– explain and apply the differences between the recognition, measurement and
disclosure requirements for borrowing costs in terms of full IFRS, IFRS for SMEs and
GRAP.
 Borrowing
costs Interest paid (P/L)
Bank 20 000 Asset 12 500
Expenses are defined as
decreases in assets that Potential to produce
results in decreases in economic benefits Bank (SFP)
equity Asset 100 000
Interest paid 20 000

Asset (SFP)
Bank 100 000
Expense Capitalise Interest paid 12 500

INTRODUCTION
Cost of asset will comprise (par 15.1)
the following:
Exclusions
When are borrowing costs (BC) capitalised?
•– When
Purchase price,attributable
BC are directly incl. import duties and
to the acquisition, non‐ or
construction
refundable
production purchase
of a qualifying asset.taxes (VAT), afterassets:
Qualifying deducting
trade discounts and rebatessubstantial Assets that necessarily take a Acquisition or construction can be funded by:
period of time to get
Debt
ready for their intended use or
sale Equity
• Any costs directly attributable to bringing asset Interest vs dividends
to location and condition necessary to operate in
All other Do dividends paid on ordinary share
the mannerborrowing
intendedcostsby management capital that has been issued to Will your answer change if the
shouldIAS
be 23 prescribes the finance the construction of a shares are compulsory
expensed (P/L) qualifying asset qualify as borrowing redeemable preference shares?
accounting treatment of
• Initial estimate of cost of dismantling/removing costs that may be capitalised?
borrowing costs
asset and restoring site on which it is located
 Amount of Borrowing
RECOGNITION costs Capitalised

Borrowing costs directly attributable to the Qualifying assets can be

acquisition, construction or production of a
financed by:
qualifying asset are capitalised as part of the cost
of the asset • Specific borrowings
Probable inflow of 1.
future economic
Recognition criteria: benefits 2.
• General borrowings
Cost can be
measured
reliably 3.
• Combination of both

Contract payment
Specific borrowings
Cash Specific borrowings General borrowings The amount of borrowing costs incurred on specific borrowings
that may be capitalised is calculated as follows =
Specific loan Specific facility

Actual borrowing costs

less
PLEASE NOTE:
Only WITHIN the
capitalisation
General POOL of funds
period Investment income on
General loan /facility temporary investment of
funds
Capitalisation period:
LIMIT TO
CAPITALISATION
START

Active Capitalisation of borrowing costs may result in

development =
Expenditure i.r.o.
interrupted for When substantially all the carrying amount of qualifying asset exceeding
qualifying asset
is being incurred extended period activities necessary to the recoverable amount
prepare qualifying
Suspend asset for intended
Borrowing costs are capitalisation use/sale completed
being unless
AND incurred
– Capitalisation must continue
– Impairment loss i.t.o. IAS 36 recognised
Activities to prepare
1 • Substantial technical and
admin work carried out
asset for sale or
intended use are in • Temporary delay necessary
AND
progress 2 to prepare asset for
intended use/sale

Quiz Quiz
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 Quiz Quiz
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DISCLOSURE
DISCLOSURE

Interest paid (not

required by IAS 23) Finance costs
R

Amount of borrowing Finance costs include the following items:

costs capitalised Finance costs(not required disclosure) 1 800 000
Less borrowing costs capitalised (330 000)
Capitalisation rate Financed costs recognised in P/L 1 470 000
used
Interest is capitalised at 18% per annum.
DISCLOSURE Quiz
Property, plant and equipment Plant Click the Quiz button to edit this object
R
Carrying amount at the beginning of the year ‐
Gross carrying amount ‐
Accumulated depreciation ‐
Additions 4 200 000
Borrowing costs capitalised 330 000
Carrying amount at the end of the year 4 530 000
Gross carrying amount 4 530 000
Accumulated depreciation ‐

Thank you!