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Summary IAS 23 Borrowing cost
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A summary of the definition, measurement and calculation of borrowing cost (IAS 23)
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Study unit 3Borrowing cost
Definitions
Borrowing cost = interest and other costs that an entity incurs is connection with the borrowing of
funds
Qualifying asset = interest and other costs that an entity incurs is connection with the borrowing of
funds
IAS 23: Borrowing cost Must be CAPITALISED as part of the cost of
Except for 2 scope exclusions, that asset
borrowing costs are directly
attributable to the acquisition, All other borrowing costs are EXPENSED
construction or production of a when they’re incurred
qualifying asset.
Capitalisation
STARTS on COMMENCEMENT DATE ENDS on CESSATION DATE
Activities started Substantially ready for use or sale – last
Borrowing cost incurred day allowed to capitalise borrowing cost
Expense incurred on preparation of asset
Suspension period – active construction/production is delayed for an extended period of time
Temporarily seize capitalisation, except if:
Delay is necessary for production
Due to substantial technical/admin work
Meeting the definitions
Does not include only interest (finance cost), but also includes other costs incurred in connection
with borrowing funds. May include:
Interest expense recognised on lease liability
Interest expense using e ective interest method
Exchange di erence on foreign loan accounts to the extend that they’re regarded as an
adjustment to the interest in the loan
Excludes:
Cost of raising share capital recognised as equity
Dividends on ordinary share capital or non-redeemable preference share
(Dividends on redeemable share capital = capitalised because they’re recognised as a
liability, not as equity)
Costs of using internal funds
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