Ind AS 23: Borrowing Costs#
Note: Ind AS 23 deals with borrowing costs, similar to Ind AS 20. Both standards are applied in Indian accounting context.
Borrowing Costs#
Components of Borrowing Costs#
- Interest on bank overdrafts and loans
- Finance charges on finance leases
- Exchange differences on foreign currency borrowings (to the extent regarded as adjustment to interest cost)
Qualifying Assets#
Assets that necessarily take substantial time to get ready for use or sale:
- Property, plant and equipment
- Investment property
- Inventories requiring substantial period to get ready for sale
- Bearer plants
Capitalization Principles#
When to Capitalize
- Expenditure is being incurred
- Borrowing costs are being incurred
- Activities necessary to prepare asset are in progress
Capitalization Period
- Begins when: expenditure + borrowing costs + activities start
- Suspended when active development interrupted
- Ends when substantially complete
Methods#
Specific Borrowings
- Borrowings taken specifically for qualifying asset
- Actual borrowing costs eligible for capitalization
General Borrowings
- Weighted average rate on general borrowings
- Calculate eligible amount
Disclosure Requirements#
- Accounting policy for capitalization
- Capitalization rate
- Amount of borrowing costs capitalized during the period
- Amount of borrowing costs recognized as expense