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    Borrowing Costs: (International Accounting Standard (IAS) 23)

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    অরূপ মিস্ত্রী বলেছেন
    This document summarizes key aspects of International Accounting Standard 23 on borrowing costs. [IAS 23] provides guidance on accounting for borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset. Borrowing costs that meet certain criteria outlined in the standard can be included in the cost of the qualifying asset. Other borrowing costs are recognized as an expense. The standard also defines key terms like borrowing costs and qualifying assets and provides guidance on when capitalization of borrowing costs should commence and cease. Disclosure of relevant accounting policies and amounts capitalized is also required.

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    Borrowing Costs: (International Accounting Standard (IAS) 23)

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    অরূপ মিস্ত্রী বলেছেন
    26 views25 pages
    This document summarizes key aspects of International Accounting Standard 23 on borrowing costs. [IAS 23] provides guidance on accounting for borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset. Borrowing costs that meet certain criteria outlined in the standard can be included in the cost of the qualifying asset. Other borrowing costs are recognized as an expense. The standard also defines key terms like borrowing costs and qualifying assets and provides guidance on when capitalization of borrowing costs should commence and cease. Disclosure of relevant accounting policies and amounts capitalized is also required.

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    IAS 23

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    This document summarizes key aspects of International Accounting Standard 23 on borrowing costs. [IAS 23] provides guidance on accounting for borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset. Borrowing costs that meet certain criteria outlined in the standard can be included in the cost of the qualifying asset. Other borrowing costs are recognized as an expense. The standard also defines key terms like borrowing costs and qualifying assets and provides guidance on when capitalization of borrowing costs should commence and cease. Disclosure of relevant accounting policies and amounts capitalized is also required.

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    26 views25 pages

    Borrowing Costs: (International Accounting Standard (IAS) 23)

    Uploaded by

    অরূপ মিস্ত্রী বলেছেন
    This document summarizes key aspects of International Accounting Standard 23 on borrowing costs. [IAS 23] provides guidance on accounting for borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset. Borrowing costs that meet certain criteria outlined in the standard can be included in the cost of the qualifying asset. Other borrowing costs are recognized as an expense. The standard also defines key terms like borrowing costs and qualifying assets and provides guidance on when capitalization of borrowing costs should commence and cease. Disclosure of relevant accounting policies and amounts capitalized is also required.

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    © All Rights Reserved
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    Download as pptx, pdf, or txt
    of 25

    Borrowing Costs

    [ International Accounting Standard (IAS) 23 ]

    Presenter:
    Muhammad Aminul Hoque FCA
    Partner
    ACNABIN, Chartered Accountants
    Objectives
    OBJECTIVE

    Borrowing costs that 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.


    Scope
    SCOPE

    This standard applies to all borrowing costs except to:

    1. a qualifying asset measured at fair value, for example a


    biological asset within the scope of IAS 41 Agriculture;

    2. inventories that are manufactured, or otherwise produced, in


    large quantities on a repetitive basis.
    Definitions
    Borrowing Costs

    Borrowing costs are interest and other


    costs that an entity incurs in connection
    with the borrowing of funds.
    Qualifying Asset

    A qualifying asset is an asset that


    necessarily takes a substantial period of
    time to get ready for its intended use or
    sale.
    Examples of Qualifying Asset

    Examples of qualifying assets:-


    (a) Inventories with substantially long period for production
    (b) manufacturing plants
    (c)power generation facilities
    (d)intangible assets, etc.

    Examples of not qualifying assets:-


    (a) Financial assets
    (b)inventories that are manufactured over a short period of
    time
    Can borrowing costs incurred to finance the
    production of inventories that has a long
    production period be capitalized?

    IAS 23 does not mandate the capitalization of borrowing


    costs for inventories that are manufactured in large quantities
    on a repetitive basis.

    Interest capitalization is allowed as long as the production


    cycle takes a ‘substantial period of time’. For example,
    production of wine.
    Can an intangible asset be a ‘qualifying
    asset’ under IAS 23?

    An intangible asset that takes a substantial period of


    time to get ready for its intended use or sale is a
    ‘qualifying asset’.

    This would be the case for an internally generated


    intangible asset in the development phase when it
    takes a ‘substantial period of time’ to complete, such
    as software.
    substantial period of time ???

     IAS 23 does not define ‘substantial period of time’. Management


    exercises judgement when determining which assets are qualifying
    assets, taking into account, among other factors, the nature of the asset.
    An asset that normally takes more than a year to be ready for use will
    usually be a qualifying asset. Once management chooses the criteria
    and type of assets, it applies this consistently to those types of asset.

     Management discloses in the notes to the financial statements, when


    relevant, how the assessment was performed, which criteria were
    considered and which types of assets are subject to capitalisation of
    borrowing costs.
    Example

    A telecom company has acquired a 5G licence. The


    management intends to use it to operate a wireless
    network. Development of the network starts when the
    licence is acquired.

    Should borrowing costs on the acquisition of the 5G


    licence be capitalised until the network is ready for its
    intended use?
    Answer

    Yes. The licence has been exclusively acquired to


    operate the wireless network. The acquisition of the
    licence is the first step in a wider investment project
    (developing the network). It is part of the network
    investment, which meets the definition of a qualifying
    asset under IAS 23.
    Recognition
     An entity shall 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.
    Borrowing costs eligible for capitalization

    Directly attributable
    to acquisition, Cost can be avoided Specific
    construction or if qualifying asset borrowings easy
    not acquired to identify
    production of
    specific asset
    Borrowing costs eligible for capitalization

    Weighted average
    Centrally controlled Use capitalization of borrowing
    loans more difficult rate to calculate costs outstanding
    to link to assets applicable interest during period
    on general loans (group or entity
    borrowings)
    Borrowing costs eligible for capitalization

     actual borrowing costs incurred on that borrowing


    during the period less any investment income on
    the temporary investment of those borrowing.
    Commencement of capitalization

    An entity shall begin capitalizing borrowing costs as part of


    the cost of a qualifying asset on the commencement date. 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.
    Suspension of capitalisation

    An entity shall suspend capitalisation of


    borrowing costs during extended periods in
    which it suspends active development of a
    qualifying asset.
    Cessation of capitalisation

     An entity shall cease capitalising borrowing costs when


    substantially all the activities necessary to prepare the
    qualifying asset for its intended use or sale are complete.

     When an entity completes the construction of a qualifying


    asset in parts and each part is capable of being used while
    construction continues on other parts, the entity shall cease
    capitalising borrowing costs when it completes
    substantially all the activities necessary to prepare that part
    for its intended use or sale.
    Disclosure

    Amount Capitalisation
    capitalised rate to
    Accounting determine
    Policy during the
    period amount eligible
    for capitalisation
    Thank You for Your Attention
    Any Questions?
    25

    Thank You

    Amin Siddiki FCA

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