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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

Qualifying AssetsOther Borrowing

Costs

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HOW is Borrowing Cost relating to Qualifying Asset Recognised?

QUALIFYINGASSET

Benchmark Treatment

EXPENSE

Allowed Alternative

CAPITALISATION

Specific Borrowingsamount to be

capitalised

General Borrowingsamount to be

capitalised

BORROWING COSTSless

INCOME from investment

CAPITALISATION RATE into

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

Exclusion of benchmark treatment

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

Revised IAS 23 provides for compulsory 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