Page 185 - F1 Integrated Workbook STUDENT 2018

Non-current assets – IAS 23, IAS 38 & IAS 36

IAS 23 – Borrowing costs

1.1 Overview

IAS 23 Borrowing Costs, defines borrowing costs as 'interest and other costs
incurred by an enterprise in connection with the borrowing of funds' (IAS 23,
para 5).

1.2 Treatment

In accordance with IAS 23 Borrowing Costs, borrowing costs that are directly
attributable to the acquisition or construction of a qualifying asset should be
capitalised as part of the cost of that asset. All other borrowing costs should be
recognised as an expense in the period in which they are incurred, i.e. finance cost.

Dr Finance costs (SOPL)

Cr Bank (SOFP)

A qualifying asset is defined as being 'an asset that necessarily takes a
substantial period of time to get ready for its intended use' (IAS 23, para 5).

Under this treatment, capitalisation of the borrowing costs will commence when
expenditure on the asset and the borrowing costs are being incurred. Capitalisation
must cease when substantially all the activities necessary to prepare the asset for
use are complete.

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