IAS 23 – Borrowing Costs

Vocabulary flashcards covering key definitions and concepts from the lecture on IAS 23 Borrowing Costs.

IAS 23 – Borrowing Costs

The International Accounting Standard that prescribes accounting treatment for borrowing costs.

Borrowing costs

Interest and other costs incurred by an entity in connection with the borrowing of funds.

Qualifying asset

An asset that necessarily takes a substantial period of time to get ready for its intended use or sale.

Capitalisation of borrowing costs

Adding borrowing costs directly attributable to a qualifying asset to the cost of that asset.

Interest on borrowings

Main component of borrowing costs, arising from bank overdrafts and short- or long-term loans, including intercompany loans.

Finance charges on finance leases

Lease-related interest costs that form part of borrowing costs under IFRS 16.

Exchange differences (foreign currency borrowings)

Currency translation differences regarded as an adjustment to interest costs and included in borrowing costs.

IAS 16 Property, Plant and Equipment

Standard covering PPE; assets under construction can be qualifying assets for borrowing-cost capitalisation.

IAS 40 Investment Property

Investment property under construction qualifies for capitalising borrowing costs.

IAS 38 Intangible Assets

Development-phase intangible assets may be qualifying assets for borrowing-cost capitalisation.

IAS 2 Inventories (long-production)

Inventories such as ships or planes made to order that take a substantial period can be qualifying assets.

Scope exclusion – IAS 41 biological assets

Assets measured at fair value (e.g., livestock, crops) are excluded from IAS 23 capitalisation rules.

Scope exclusion – repetitive inventories

Inventories produced in large quantities on a repetitive basis (e.g., maturing whisky) are excluded from capitalisation.

Specific borrowing

Loan obtained specifically for a qualifying asset; actual interest (net of investment income) is capitalised.

Investment income offset

Interest earned on unutilised loan funds reduces capitalisable borrowing costs for specific borrowings.

General borrowing

Borrowings not tied to a specific asset; a weighted-average capitalisation rate is applied to qualifying-asset expenditures.

Weighted-average (WA) capitalisation rate

Average cost of general borrowings, calculated as total interest ÷ total borrowings, used to determine capitalisable amount.

Capitalisation ceiling

Amount capitalised in a period cannot exceed total borrowing costs incurred in that period.

Commencement of capitalisation

Begins when (1) expenditures are incurred, (2) borrowing costs are incurred, and (3) activities to prepare the asset are underway.

Suspension of capitalisation

Temporarily stops during extended periods when active development is interrupted (e.g., strikes, bad weather).

Cessation of capitalisation

Ends when substantially all activities necessary to prepare the qualifying asset are complete.

Statement of Profit or Loss (SOPL) recognition

Borrowing costs not capitalised are recognised as an expense in SOPL.

Substantial period of time

A long construction or production period that is necessary for an asset to become ready for use or sale.

Interest payable

Liability account credited when accruing interest, whether capitalised or expensed.

IFRS 16 Leases

Standard that governs finance leases; finance charges under IFRS 16 form part of borrowing costs.