International Financial Reporting Standards_guide.pdf

CHAPTER 27
Borrowing Costs (IAS 23)
27.1 OBJECTIVE
The acquisition, construction, or production of certain assets can take longer than one accounting
period. If borrowing costs incurred during a period are directly attributable to
specific qualifying assets, under certain circumstances it will be legitimate to regard these
costs as forming part of the costs of getting such assets ready for their intended use or sale.
IAS 23 defines a qualifying asset and provides guidance on which borrowing costs should
be capitalized and included in the carrying amount of a qualifying asset. This guidance
addresses instances in which the funds are specifically borrowed to obtain a qualifying asset
and where the entity utilizes funds from their general borrowings.
27.2 SCOPE OF THE STANDARD
IAS 23 is to be applied in accounting for all borrowing costs, which are defined as interest
and other costs incurred by an entity in connection with the borrowing of funds.
IAS 23 is not applicable to borrowing costs that are directly attributable to qualifying assets
measured at fair value or inventories that are produced in large quantities on a repetitive
basis over a short period of time.
27.3 KEY CONCEPTS
27.3.1 Borrowing costs are interest and other costs that an entity incurs in connection with
the borrowing of funds. The costs include:
■ interest calculated using the effective interest rate method as described in IAS 39;
■ finance charges in respect of finance leases as set out in IAS 17; and
■ exchange differences arising from foreign currency borrowings to the extent that they
are regarded as an adjustment to interest cost.
27.3.2 Qualifying assets are those assets that require a substantial time to bring to their
intended use or saleable condition, for example:
■ inventories requiring a substantial period to bring them to a saleable condition; and
■ manufacturing plants, power generation facilities, and investment properties.
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