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Summary IAS 23 Borrowing costs
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This document describes a short and efficient summary as well as class examples of the content covered in the IAS23 standard.
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IAS23 Borrowing costsDefinitions:
Borrowing costs: costs directly attributable to the acquisition,
construction or production of qualifying asset form part of cost of that
asset (gets capitalized). If not, they get expensed.
Examples
Borrowing costs capitalized Borrowing costs expensed
Interest expense under IFRS 9 Actual/ imputed cost of equity
Interest expense under IFRS 16 Preference shares A not classified
Exchange differences arising from as L
foreign currency
Qualifying asset: IAS2, IAS16, IAS38, IAS40. NOT IFRS9. It is
important to distinguish how QA was financed to determine the
borrowing costs that must be capitalized.
3 financing options:
specific loan / facility (overdraft)
general loan (pool of funds)
combination of both
Specific Loans
Calc: Actual borrowing costs incurred – investment income earned
With specific loan, total proceeds are received on day one. Thus
interest accrues from day 1.
All funds borrowed are not necessarily used immediately.
surplus funds are normally temporarily invested which is where
investment income increases.
Specific facility:
Funds are received when they are needed. Thus interest only accrues
are funds are withdrawn.
There are no surplus funds to be invested, therefore no income.
interest rate on borrowings > interest rate on investments = therefore it
would not make sense to invest the funds.
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