IAS 23 BORROWING COSTS
IAS 23 is applied to the accounting for borrowing costs (IAS 23.2–23.3). Borrowing costs are interest costs and other costs that the entity incurs in connection with the borrowing of funds (IAS 23.5). Borrowing costs may include the following (IAS 23.6):
Borrowing costs, which are directly attributable to the acquisition, construction or production of a qualifying asset, form part of the cost of that asset, i.e. they are capitalized (IAS 23.1 and 23.8–23.9). A qualifying asset is an asset that necessarily takes a substantial period of time to get ready for its intended use or sale (IAS 23.5). The term “substantial period of time” is not quantified in the standard. In our opinion, this term can be interpreted as a period of at least 12 months. Assets that are ready for their intended use or sale when they are acquired are not qualifying assets (IAS 23.7).
Among others, an entity is not required to apply IAS 23 to the borrowing costs for inventories that are produced in large quantities on a repetitive basis (e.g. whiskey in the financial statements of the producer) (IAS 23.4b).
2 SPECIFIC AND GENERAL BORROWINGS
When calculating the amount of borrowing costs to capitalize, two categories are to be distinguished (IAS 23.10–23.15):