| OBJECTIVE OF IAS 23: – The objective of IAS 23 is to prescribe the accounting treatment for borrowing costs (finance cost). – Borrowing cost are interest and other costs that an entity incurs in connection with the borrowing of funds – This standard applies where the particular borrowing are applied to the construction of certain assets; so called Self-Constructed assets. QUALIFYING ASSET: – A qualifying asset is an asset that takes a substantial period of time to get ready for its intended use or sale – That asset could be property, plant, and equipment and investment property during the construction period, intangible assets during the development period, or “made-to-order” inventories CAPITALIZATION OF BORROWING COST TO THE COST OF ASSET: – 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 recognized as an expense Borrowing Cost and Interest Income on Short-Term Investment of Funds: Costs eligible for capitalization are – the actual costs incurred less any income earned on the temporary investment of such borrowings COMMENCEMENT OF CAPITALIZATION: – expenditures are being incurred – borrowing costs are being incurred and – activities that are necessary to prepare the asset for its intended use or sale are in progress (may include some activities prior to commencement of physical production). SUSPENSION OF CAPITALIZATION: – Capitalization should be suspended during periods in which active development is interrupted. – – Capitalization should cease when substantially all of the activities necessary to prepare the asset for its intended use or sale are complete. – If only minor modifications are outstanding, this indicates that substantially all of the activities are complete. CESSATION OF CAPITALIZATION: – Where construction is completed in stages, which can be used while construction of the other parts continues, capitalization of attributable borrowing costs should cease when substantially all of the activities necessary to prepare that part for its intended use or sale are complete. Disclosure The accounting policy adopted [required only until 1 January 2009 if immediate expensing model is used] Amount of borrowing cost capitalised during the period Capitalization rate used |
