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New borrowing cost ias 23
This document summarizes the key aspects of IAS 23 Borrowing Costs. It defines borrowing costs and qualifying assets. For qualifying assets, borrowing costs directly attributable to the acquisition or construction must be capitalized as part of the asset cost, while other borrowing costs are expensed. Capitalization begins when expenditures are incurred, borrowing costs are incurred, and activities necessary for intended use/sale begin, and ceases when activities are substantially complete. An entity must disclose the amount of borrowing costs capitalized and capitalization rate used.
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Introduction to IAS 23, covering core principles, scope, definitions, recognition, capitalization, and disclosure.
Borrowing costs must be capitalized for qualifying assets; definition and scope detailing what costs are eligible.
Criteria for recognizing borrowing costs, the amount eligible for capitalization, and how to determine it.
Commencement, suspension, and cessation of capitalization processes for borrowing costs associated with qualifiers.
Entities must disclose amounts of borrowing costs capitalized and the capitalization rate used.
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New borrowing cost ias 23
- 1.
- 2. Overview CORE PRINCIPLE SCOPE DEFINITIONS RECOGNITION BORROWING COSTS ELIGIBLE FOR CAPITALIZATION COMMENCEMENT OF CAPITALIZATION SUSPENSION OF CAPITALIZATION CESSATION OF CAPITALIZATION DISCLOSURE QUESTIONS AND DISCUSSION
- 3. CORE PRINCIPLE Borrowing coststhat are directly attributable to the acquisition, construction or production of a qualifying asset form part of the cost of that asset. Other borrowing costs are recognized as an expense.
- 4. SCOPE For all borrowingcost issues Scope
- 5. DEFINITIONS Borrowing costs are:-interest and other costs that an entity incurs in connection with the borrowing of funds. A qualifying asset:- is an asset that necessarily takes a substantial period of time to get ready for its intended use or sale. Definitions
- 6. continued Examples of qualifyingassets:- (a) inventories (b) manufacturing plants (c) power generation facilities (d) intangible assets (e) investment properties (f) bearer plants. Examples of not qualifying assets:- (a) Financial assets (b) inventories that are manufactured over a short period of time Continued
- 7. RECOGNITION An entityshall capitalize borrowing costs when it is probable that they will result in future economic benefits to the entity and the costs can be measured reliably. An entity shall recognize other borrowing costs as an expense in the period in which it incurs them.
- 8. continued Borrowing costs eligiblefor capitalization actual borrowing costs incurred on that borrowing during the period less any investment income on the temporary investment of those borrowing.
- 9. continued To the extentthat an entity borrows funds generally and uses them for the purpose of obtaining a qualifying asset, the entity shall determine the amount of borrowing costs eligible for capitalization by applying a capitalization rate
- 10. continued The capitalization rateshall be the weighted average of the borrowing costs that are outstanding during the period, other than borrowings made specifically for the purpose of obtaining a qualifying asset.
- 11. continued • The amountof borrowing costs that an entity capitalizes during a period shall not exceed the amount of borrowing costs it incurred during that period.
- 12. continued Commencement of capitalization The commencement date for capitalization Is the date when the entity first meets all of The following conditions: (a) it incurs expenditures for the asset; (b) it incurs borrowing costs; and (c) it undertakes activities that are necessary to prepare the asset for its intended use or sale.
- 13. continued Suspension of capitalization An entity shall suspend capitalization of borrowing costs during extended periods in which it suspends active development of a qualifying asset.
- 14. continued Cessation of capitalization An entity shall cease capitalizing borrowing costs when substantially all the activities necessary to prepare the qualifying asset for its Intended use or sale are complete.
- 15. Disclosure An entity shalldisclose: (a) the amount of borrowing costs capitalized during the period; and (b) the capitalization rate used to determine the amount of borrowing costs eligible for capitalization.