Educational Material on Ind AS 23 Borrowing Costs
Ind AS 23 Borrowing Costs : Ind AS 23 Borrowing Costs requires that borrowing costs directly attributable to the acquisition, construction or production of a ‘qualifying asset’ (one that necessarily takes a substantial period of time to get ready for its intended use or sale) are included in the cost of the asset. Other borrowing costs are recognised as an expense. Ind AS 23 was reissued in March 2007 and applies to annual periods beginning on or after 1 January 2009.
History of Ind AS 23
| November 1982 | Exposure Draft E24 Capitalisation of Borrowing Costs |
| March 1984 | Ind AS 23 Capitalisation of Borrowing Costs |
| 1 January 1986 | Effective date of Ind AS 23 (1984) |
| August 1991 | Exposure Draft E39 Capitalisation of Borrowing Costs |
| December 1993 | Ind AS 23 (1993) Borrowing Costs (revised as part of the ‘Comparability of Financial Statements’ project) |
| 1 January 1995 | Effective date of Ind AS 23 (1993) Borrowing Costs |
| 25 May 2006 | Exposure Draft of proposed amendments to Ind AS 23 |
| 29 March 2007 | IASB amends Ind AS 23 to require capitalisation of borrowing costs. |
| 22 May 2008 | Ind AS 23 amended for ‘Annual Improvements to IFRSs 2007 for components of borrowing costs |
| 1 January 2009 | Effective date of March 2007 and May 2008 amendments to Ind AS 23 |
Educational Material on Ind AS 23 Borrowing Costs
Ind AS 23 Borrowing Costs : Ind AS 23 Borrowing Costs that are Directly attributable to the acquisition, construction or production of qualifying asset form part of that asset and other Borrowing cost are recognised as expense. Borrowing cost can be defined as interest and other costs incurred by an enterprise in relation to the borrowing of funds. Explaining in a more technical way, borrowing costs refer to the expense of taking out loan expenses like interest payments incurred from a loan or any other kind of borrowing. Interest also counts amortisation of premium/discount on debt. Other costs include amortisation of debt issue costs and some foreign exchange differences which are treated as an adjustment of internal cost.
Key definitions
Borrowing cost may include: [Ind AS 23.6]
- interest expense calculated by the effective interest method under Ind AS 39,
- finance charges in respect of finance leases recognised in accordance with Ind AS 17 Leases, and
- exchange differences arising from foreign currency borrowings to the extent that they are regarded as an adjustment to interest costs
This standard does not deal with the actual or imputed cost of equity, including any preferred capital not classified as a liability pursuant to Ind AS 32.
Objective of Ind AS 23
The objective of IAS 23 is to prescribe the accounting treatment for borrowing costs. Borrowing costs include interest on bank overdrafts and borrowings, finance charges on finance leases and exchange differences on foreign currency borrowings where they are regarded as an adjustment to interest costs.
Scope of Ind AS 23
Two types of assets that would otherwise be qualifying assets are excluded from the scope of Ind AS 23:
- qualifying assets measured at fair value, such as biological assets accounted for under Ind AS 41 Agriculture
- inventories that are manufactured, or otherwise produced, in large quantities on a repetitive basis and that take a substantial period to get ready for sale (for example, maturing whisky)
Accounting treatment
Recognition
Borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset form part of the cost of that asset and, therefore, should be capitalised. Other borrowing costs are recognised as an expense. [Ind AS 23.8]
Measurement
Where funds are borrowed specifically, costs eligible for capitalisation are the actual costs incurred less any income earned on the temporary investment of such borrowings. [Ind AS 23.12] Where funds are part of a general pool, the eligible amount is determined by applying a capitalisation rate to the expenditure on that asset. The capitalisation rate will be the weighted average of the borrowing costs applicable to the general poo
Disclosure [Ind AS 23.26]
- amount of borrowing cost capitalised during the period
- capitalisation rate used
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Educational Material on Ind AS 23 Borrowing Costs
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Educational Material on Ind AS 23 Borrowing Costs
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