Wiley International Trends in Financial Reporting under IFRS: Including Comparisons with US GAAP, Chinese GAAP, and Indian GAAP

CHAPTER 12

Borrowing Costs (IAS 23)

1. OBJECTIVE

1.1 This Standard prescribes the accounting treatment for borrowing costs. It does not deal with the actual or imputed cost of owners’ equity, including preferred capital that is not classified as a liability.

2. SYNOPSIS OF THE STANDARD

The summary of this Standard and the key terms defined therein are presented next.

2.1 This Standard defines borrowing costs as interest and other costs that are incurred by an entity in connection with the borrowing of funds.

2.2 The borrowing costs that are directly attributable to the acquisition, construction, or production of a qualifying asset should be capitalized as part of the cost of that asset only when it is probable that they will result in future economic benefits to the entity and the costs can be measured reliably.

2.2.1 A qualifying asset is an asset that takes a substantial period of time to get it ready for its intended use or sale. Therefore, assets that are already ready for their intended use or sale or that can be purchased readily are not qualifying assets.

2.2.2 In case an entity specifically borrows funds for the purpose of obtaining a particular qualifying asset (“specific borrowing”), the amount of borrowing costs that are eligible for capitalization is the amount of actual borrowing costs incurred on such borrowing during the period, less any income earned on the temporary investment of those borrowings.

2.2.3 In case funds that are borrowed generally (“general borrowing” ...