CHAPTER 17: BORROWING COSTS (PAS 23)

Definition: (PAS 23; p5) interest and other costs that an entity incurs in borrowing of funds.
Specific Borrowing: PAS 23; p12, acquiring a qualifying asset.
 Capitalize borrowing cost = actual borrowing cost incurred during the period less any investment from the
temporary investment of those borrowings.
General Borrowing: acquiring a qualifying asset and partly for general or working capital purposes.
 Capitalize borrowing cost = average carrying expenditures on the asset during the period multiplied by a
capitalization rate or average interest rate.
 Note: PAS 23: borrowing costs incurred in acquiring a qualifying asset should be capitalized as the cost of the same.
 Qualifying asset: requires a substantial period of time to be ready for use or sale. (ex: Manufacturing Plant,
Intangible asset)
 PAS 23: exception for capitalization of borrowing costs to the ff. asset: a. asset measured at fair value, b. inventory
manufactured in repetitive basis, c. asset that’s ready for use/sale when acquired.
 PAS 23; P8: a. capitalization of borrowing cost is mandatory for a qualifying asset and, b. if not directly attributable
to a qualifying asset, borrowing cost is expensed immediately.
 Commencement of capitalization: (when 3 conditions are present) a. when the entity incurs expenditures
for the asset, b. incurs borrowing costs, c. undertakes activities to prepare the asset for use/sale.
 Cessation of capitalization: when substantially all the activities necessary to prepare the qualifying asset
for use/sale are complete.