Wiley IFRS 2014: Interpretation and Application of International Financial Reporting Standards

Chapter 10BORROWING COSTS

1. INTRODUCTION
2. DEFINITIONS OF TERMS
3. RECOGNITION AND MEASUREMENT
   1. Capitalization of Borrowing Costs
      1. IAS 23, as revised in 2007
      2. Determining the time period for capitalization of borrowing costs
      3. Suspension and cessation of capitalization
      4. Costs in excess of recoverable amounts
      5. Disclosure requirements
4. US GAAP COMPARISON

INTRODUCTION

Property (such as factory buildings) is often constructed by an entity over an extended period of time, and during this interval, when the property has yet to be placed in productive service, the entity may incur interest cost on funds borrowed to finance the construction. IAS 23 provides that such cost must be added to the carrying amount of the asset under construction; the formerly available benchmark treatment option to expense financing costs as incurred was eliminated as a consequence of an amendment to IAS 23 in 2007. European companies had historically generally expensed such costs as period costs as they were incurred, because this had a more tax-efficient strategy. While IFRS does not dictate tax requirements, unless divergence between tax and financial reporting is permitted in the reporting entity's tax jurisdiction, this will no longer be an available strategy.

Sources of IFRS
IAS 23

DEFINITIONS OF TERMS

Borrowing costs. Interest and other costs that an entity incurs in connection with the borrowing of funds. Borrowing costs that are directly attributable to the acquisition, construction or production ...