Wiley Interpretation and Application of IFRS Standards

10Borrowing Costs

1. Introduction
2. Definitions of Terms
3. Recognition and Measurement
   1. Capitalisation of Borrowing Costs
      1. When do we Start Capitalising?
      2. How Much should we Capitalise?
      3. When do we Stop Capitalising Borrowing Costs?
      4. Costs in Excess of Recoverable Amounts
      5. Disclosure Requirements
4. Future Development
5. US GAAP Comparison

Introduction

The crux of the standard is that borrowing costs incurred as a result of the construction, manufacturing or acquiring of specific assets should form part of the cost of those assets, i.e., they should be capitalised. The standard refers to these particular assets as “Qualifying assets,” the definition of which is explained in the next section of this chapter. The standard then qualifies that other borrowing costs, those not attributable to qualifying assets, must be expensed.

The standard specifically excludes qualifying assets measured at fair value and inventories which are produced in large quantities on a repetitive basis. The thought behind these exclusions was as follows.

The determination of fair value, and thus the measurement of the asset, is not affected by the amount of borrowing costs incurred. Thus, there is no need for specific requirements for accounting for the borrowing cost; they are simply treated as all other borrowing costs are and expensed. The excluding of inventories produced in large quantities on a repetitive basis was an acknowledgement that it would be difficult for preparers to collect the information required to ...