IAS 23 – BORROWING COST

BY

Adeel Saleem

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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

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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.

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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.

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BORROWING COSTS

BORROWING COSTS

Other Borrowing
Qualifying Assets
Costs

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 HOW is Borrowing Cost relating to
Qualifying Asset Recognised?
QUALIFYING
ASSET

Benchmark Treatment Allowed Alternative

EXPENSE CAPITALISATION

Specific Borrowings General Borrowings

amount to be amount to be
capitalised capitalised

BORROWING COSTS CAPITALISATION RATE

less into
INCOME from investment EXPENDITURE incurred
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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.

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When to suspend
capitalisation?
During extended period in which active
development is interrupted
UNLESS

delay is part of the development process

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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

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Disclosures

 Accounting Policy adopted.

 Amount of Borrowing cost Capitalised
during the period.
 Capitalisation Rate (in case of General
Borrowing)

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

 Exclusion of benchmark Revised IAS 23 provides for compulsory

treatment 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

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