International Accounting Standard 23

• Issued: in 1984; re-issued in 1993, followed by amendments
• Effective date: 1 January 1995
• What it does:
  • IAS 23 prescribes the accounting treatment of borrowing costs that may include:
    • Interest expense,
    • Finance charges in respect of finance leases,
    • Exchange differences from foreign currency borrowings regarded as an adjustment of interest costs, etc.
  • IT states that borrowing costs directly attributable to acquisition, construction or production of a qualifying asset form part of that asset and other borrowing costs are expensed.
  • IAS 23 defines both borrowing costs (interests, finance lease charges, etc.) and qualifying asset (inventories except for manufactured ones, manufacturing plants, intangible assets, investment properties).
  • IAS 23 sets criteria when borrowing costs are eligible for capitalization and requires including these costs into cost of an asset (immediate expensing is not allowed).
  • The rules for commencement of capitalization, suspension of capitalization and cessation of capitalization of borrowing costs are prescribed.
  • Finally, a number of disclosures is required.

• How to Capitalize Borrowing Costs under IAS 23

• How to capitalize exchange rate differences on loan as borrowing costs?

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