PAS 23 BORROWING COST

NATURE
- Interest and other cost ng isang entity in connection to borrowing funds
It includes;
1. Interest expense calculated using the effective interest method
2. Finance charges with respect to finance lease (you will own the lease at the end of
time)
3. Exchange difference (fluctuations sa exchange rate) adjustment sa interest cost.
Qualifying asset
-Takes substantial period of time bago maging available for its intended use
o Manufacturing plants
o Intangible asset
o Investment property
o Bearer plants
o PPE
o Inventory (na requires a lot of tie before mabenta)

Exclusion from Qualifying Asset

o Biological assets or assets measures at FairValue
o Inventory on large and repetitive basis
o Assets ready for its intended use

ACCOUNTING FOR PAS 23/ RECOGNITION / MEASUREMENT

If the borrowing cost is directly attributable in the acquiring, constructing and production
of an qualifying asset, it is required to CAPITALIZED as cost of asset
Other borrowing cost are expensed

 Directly attributable of a qualifying asset

 Results future economic benefit
 Measured reliably

1. Specific Borrowing Cost

- Specifically for purpose of acquiring a qualifying asset
- The capitalizable amount will be the actual borrowing cost less the any investment
income incurred (it reduces the cost of qualifying asset)
 PAS 23 BORROWING COST
2. General Borrowing Cost
- Borrowed generally
- No rule for deductions of investment income
- The amount to be capitalized will be.

FORMULA : average carrying amount x average interest rate or capitalization rate

average interest rate or capitalization rate = Total annual borrowing cost / total
general borrowings

GENERAL RULE
3. Specific and General Borrowing Cost
- Capitalizable borrowing cost =< actual interest incurred
*Which is lower(diko sure)

Commencement of Borrowing Cost

 If incurs expenditures for asset
 If incurs borrowing cost
 Indertakes activity or in progress activities necessary for the asset to be prepared for its
intended use.
o Encompass more than the physical construction of asset
 Technical and admin work prior to commencement (plans. Permit)
Suspension of Borrowing Cost
 Interrupted
 Only during the extended period of delay which ctive development is delayed
 But not due to temporary delay or common delay in the nature of operation
Cessation of Borrowing Cost
 Completed
 No longer incurs borrowing cost or already paid even dipa tapos ang construction hindi
na sya capitalizable
DISCLOSURES
1. Amount of borrow cost capitalized during the period
2. Capitalization rate used
3. Accounting policy adopted

Note: It is not required to disclose the segregation of asset to qualifying asset in the statement
of financial position
 PAS 23 BORROWING COST
Additional notes;
- Accounting for interest incurred in financing construction of PPE, capitalize only the
interest incurred during construction
- Avoidable interest, portion of total interest cost which could not have been incurred if
expenditures for asset construction had not been made