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Chapter 2

IAS 23 Borrowing costs

5.1 IAS 23 Treatment

Borrowing costs must be capitalised as part of the cost of an asset if that asset is a
qualifying asset (one which necessarily takes a substantial time to get ready for its
intended use or sale).

5.2 Commencement of capitalisation

Capitalisation commences when:

 expenditure for the asset is being incurred, and

 borrowing costs are being incurred, and

 activities that are necessary to prepare the asset for its intended use or sale are
in progress.

5.3 Cessation of capitalisation

Capitalisation ceases when:

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

 there is an unplanned suspension of construction, e.g. due to industrial
disputes.

5.4 Interest rate

The rate of interest to be used is:

 actual interest rate where specific funds borrowed, or

 weighted average of general borrowings where general borrowings used

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