MFRS 123

BORROWING COSTS

17 November 2023

Prepared by:
Jehan Nabila Azizan

PRIVATE & CONFIDENTIAL

JOHOR PORT BERHAD 1

MFRS123 - CORE PRINCIPLE & SCOPE
CORE PRINCIPLE
Para 1 of MFRS123:
Borrowing costs that are directly
attributable to the acquisition,
construction or production of a
qualifying asset form part of the cost of
that asset. Other borrowing costs are
recognised as an expense.
SCOPE
1. An entity shall apply this Standard in accounting for borrowing
costs.
2. The Standard does not deal with the actual or imputed cost of
equity, including preferred capital not classified as a liability.
3. An entity is not required to apply the Standard to borrowing
costs directly attributable to the acquisition, construction or
production of:
a) a qualifying asset measured at fair value, for example a
biological asset within the scope of MFRS 141 Agriculture;
or
b) inventories that are manufactured, or otherwise produced,
in large quantities on a repetitive basis.
JOHOR PORT BERHAD 2
MFRS123 - DEFINITIONS

An asset that necessarily takes a

Interest and other substantial period of time to get
costs that are ready for its intended use or sale.
incurred when funds What is
are borrowed. Borrowing Example:
Cost? • Construction of building/plant
What is • Power generation facilities
Qualifying • Intangible Assets (i.e. R&D)
Borrowing costs may include: Asset? • Production of inventories that
• Interest expense calculated using the take a considerable period of
effective interest method as time to bring to saleable
described in MFRS 9. condition and others.
• Interest in respect of lease liabilities
recognised in accordance with MFRS Non-qualifying Assets:
16 Leases • Assets & Inventories that
• Exchange differences arising from produces over a short period of
foreign currency borrowings to the time.
extent that they are regarded as an • Assets ready for intended use or
adjustment to interest costs. sale.
JOHOR PORT BERHAD 3
MFRS123 – DEFINITIONS (CON’T)

Substantial period based on JPB’s Asset Policy Para 3.5 (iii):

The substantial period represents 3 months or more starting from commencement date until completion
date of the said acquisition, construction or production such as refurbishment, retrofitting works and
rehabilitation of infrastructure. The related borrowing cost that can be capitalised shall be more than
RM1,000.00. Nevertheless, the Head of Finance shall determine the qualifying assets for capitalization of
borrowing cost that meet the definition of the “substantial period”.

JOHOR PORT BERHAD 4

MFRS123 - RECOGNITION

Para 8 of MFRS123:

An entity shall capitalise borrowing costs that
are directly attributable to the acquisition,
construction or production of a qualifying asset
as part of the cost of that asset. An entity shall
recognise other borrowing costs as an expense
in the period in which it incurs them.
• Will result in future economic benefit
to the entity.
• Cost that can be measured reliably.
• Funds borrowed are specifically for
the purpose of acquiring a qualifying
asset.

Para 16 of MFRS123:

When the carrying amount or the expected • If the carrying amount of an asset
ultimate cost of the qualifying asset exceeds its (including borrowing cost) > its
recoverable amount or net realisable value, the recoverable amount or Net
carrying amount is written down or written off in Realisable Value (NRV), the asset
accordance with the requirements of other has to be written off accordingly.
Standards. In certain circumstances, the
amount of the write down or write-off is written
back in accordance with those other Standards.

JOHOR PORT BERHAD 5

SPECIFIC & GENERAL BORROWINGS

The amount of borrowing costs

Specific eligible for capitalisation = Actual
Refer Para 12 of borrowing cost incurred less income
MFRS123 on the temporary investment of
those borrowings.
BORROWINGS
Capitalisation rate = Total general
General
borrowing costs for the period /
Refer Para 14 of
Weighted average of total general
MFRS123
borrowing.

JOHOR PORT BERHAD 6

RECOGNITION – SPECIFIC BORROWINGS

Example:

On January 2022, Company Z secured a 8% long-term loan of RM10 million from ABC Bank to finance the
construction costs of their office building. The construction will be completed on December 2023. Company
Z made a temporary investment which provided an interest income of RM200,000. The amount of
borrowing cost that can be capitalised shall be as follows:

Interest on loan RM10 million x 8% x 2 years = RM1,600,000

Interest Income = -RM200,000
Interest that can be capitalised = RM1,400,000

JOHOR PORT BERHAD 7

RECOGNITION – GENERAL BORROWINGS

Example:

Company A raised finance amounting to RM400,000 to finance both construction of plant (RM300,000)
and operations (RM100,000). They want to capitalised borrowing costs on the qualifying assets.

Weighted Interest
Principal as at
Capitalisation rate: Average Rate (a) x (b) = %
31.12.2022
(a) (b)
12% Loan Stock RM100,000 25% 12% 3.00%
10% Term Loan RM220,000 55% 10% 5.50%
8% Redeemable Preference Shares RM80,000 20% 8% 1.60%
Total RM400,000 100% 10.10%

Interest that can be capitalised RM300,000 x 10.10% = RM30,300

Interest to be expensed off RM100,000 x 10.10% = RM10,100

JOHOR PORT BERHAD 8

RECOGNITION – COMMENCEMENT

Example:

Para 17: On 1 July 2021, Company ABC started constructing a plant that expected to
An entity shall begin have a useful life of 50 years. The estimated total cost of the construction was
capitalising borrowing costs RM25 million and expected to be completed on 30 June 2023. On 1 May 2021,
as part of the cost of a Company ABC raised a 5 year long-term loan of RM20 million with interest rate
qualifying asset on the of 8% per annum to finance the project. The total construction cost for the year
commencement date. The is RM10 million. The calculation of the borrowing cost for the year ended 31
commencement date for
Dec 2021 is as follows:
capitalisation is the date when
the entity first meets all of the
Total Borrowing Cost
following conditions: RM20 million x 8% x 8/12 = RM1,066,667
incurred
(a) It incurs expenditures for Total Borrowing Cost eligible
RM1,066,667 x 6/8 = RM800,000
the assets; for capitalisation
(b) it incurs borrowing costs; Borrowing Cost to be
RM1,066,667 - RM800,000 = RM266,667
expensed off
(c) it undertakes activities that
are necessary to prepare
the assets for its intended SOPL :
use or sale.
Finance Cost – RM266,667

COMMENCEMEN SOFP :
CONDITIONS PPE – RM10 million + RM0.8 million = RM10.8 million
T
JOHOR PORT BERHAD 9
RECOGNITION – SUSPENSION

Example:

On 1 Jan 2022, Company ABC suspended their construction plant due to

shortage of material. The reconstruction recommenced back on 1 March 2022
and was finally back on schedule. The total construction cost for the year 2022
Para 20: is RM10 million. The calculation of the borrowing cost for the year ended 31
Dec 2022 is as follows:
An entity shall suspend
capitalisation of
borrowing costs during Total Borrowing Cost
RM20 million x 8% x 12/12 = RM1,600,000
incurred
extended periods in Total Borrowing Cost eligible
which it suspends RM1,600,000 x 10/12 = RM1,333,333
for capitalisation
active development of Borrowing Cost to be
RM1,600,000 - RM1,333,333 = RM266,667
expensed off
a qualifying Asset.

SOPL :
Finance Cost – RM266,667

SOFP :
CONDITIONS
SUSPENSION PPE – RM10.8 million (2021) + RM10 million + RM1.3 million =
RM22.1 million
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MFRS123 – CESSATION

Example:

On 30 June 2023, the construction completed as per schedule. The total

construction cost for the year 2023 is RM5 million. The calculation of the
Para 22: borrowing cost for the year ended 31 Dec 2023 is as follows:
An entity shall cease
capitalising Total Borrowing Cost
RM20 million x 8% x 12/12 = RM1,600,000
borrowing costs incurred
Total Borrowing Cost eligible
when substantially RM1,600,000 x 6/12 = RM800,000
for capitalisation
all the activities Borrowing Cost to be
RM1,600,000 - RM800,000 = RM800,000
necessary to prepare expensed off
the qualifying asset
for its intended use SOPL :
or sale are complete. Finance Cost – RM0.8 million
*RM2.9 mil consist of
Depreciation – (RM25 million + RM2.9 million*) / 50 years x borrowing cost
6/12 = RM0.3 million capitalised during:
Year 2021 – RM0.8 mil
Year 2022 – RM1.3 mil
SOFP : Year 2023 – RM0.8 mil
CESSATION PPE – RM25 million + RM2.9 million* = RM27.9 million
CONDITIONS
Acc Depn – RM0.3 million
JOHOR PORT BERHAD 11
DISCLOSURE

An entity shall disclose:

1. Amount of borrowing capitalised for the period.

2. Capitalisation rate used to determine amount of borrowing costs.

Extract of disclosure in JPB’s AFS 2022 (Note 10 – PPE):

JOHOR PORT BERHAD 12

THANK YOU

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