IAS 23

Borrowing Costs
Borrowing Costs
• Borrowing costs are interest and other costs that an entity incurs
when funds that are borrowed are used
• Can also be said INTEREST PAYABLE
Recognition
Borrowing costs should be capitalized if they are:
• Related to acquisition, construction or production of a QUALIFYING
ASSET

• Qualifying asset are those asset that takes substantial period of time
to get ready for its intended use or sell
Capitalization period
• Borrowing costs should only be capitalized while construction is in
progress
• Capitalization will incur when:
i) Expenditures for asset is being incurred
ii) Borrowing costs are being incurred
iii) Activities that are necessary to get the asset ready for use are in
progress
• Should stop capitalization when asset is ready for use
• Capitalization should be paused when active development is interrupted
Capitalization period
• Capitalization will be the interest payable taken out from a loan
• The interest payable less (-) income earned on temporary investment
of borrowings, will be the CAPITALIZATION
• Weighted average general borrowing rate can be used if construction
of a qualifying asset is financed from entity general borrowings
Disclosure
IAS 23 requires the following disclosures:
• The value of borrowing costs capitalized during the period
• The capitalization rate
Journal entries
During construction period
Interest expense of B.C.
Capitalization of Interest expense
Debit
Dr Qualifying asset (PPE)
Dr Interest/Finance expense
Dr Qualifying asset (PPE)
Credit
Cr Cash/Bank or Accounts Payable
Cr Borrowing costs
Cr Borrowing costs/interest payable
Cr Borrowing costs (SOFP)