BCOM, BBA, CPA AND ACCA, accounting students And Any Other Accounting Practitioners.
Understanding Borrowing Costs – IAS 23
IAS 23 – Borrowing Costs
The objective of IAS 23 is to specify the accounting treatment for Borrowing Costs (Interest Costs).This is somewhat a short accounting standard.
When an entity incurs interest costs for example if it has to raise a loan to finance the purchase/construction of an asset;
IAS 23 requires Borrowing costs (interest costs) to be written off to profit and loss account in the financial period in which they are incurred.
However; borrowing costs MUST be CAPITALIZED as part of the cost of an asset when they are directly attributable to acquisition or construction of a Qualifying Asset (IAS 23)-an asset that takes a substantial period of time in construction to get ready for its intended use or sell.
When To Start Capitalising;
-When expenditure on the asset is being incurred
-When borrowing costs are being incurred
-When activities necessary to prepare the asset have started.
When Do You Suspend Capitalisation
If development of the asset is suspended for an extended period of time.
When To Cease Capitalisation
When the Asset is substantially complete.
Also read:https://www.campustimesug.com/?s=ias37+provisions
