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According to IAS-23 (The cost of borrowing), originally in the treatment of the borrowing cost are recognized as an expenses in the period in which they occurred with exception of those can be capitalized it as an alternative treatment, under this treatment is capitalized borrowing costs when they are directly attributable to the possession or establishment of assets or manufacturing part of the assets include in the total cost of asset, when the asset its potentially to achieve the economic benefits which subject to measure reliably measure.
Qualified asset to bear the borrowing coast, is the assets which takes its preparation necessarily long period to get ready for its intended purpose, whether for sale or for use.
Examples include; good that requires its preparation a long time to make it salable, factories, investment property, such as commercial centers, administrative………etc…
The capitalized of borrowing cost as part of the cost of qualifying asset when;
· Be the capital expenditure incurred on the assets are ongoing.
· Borrowing cost is being incurred.
· The necessary activates to prepare the assets for its intended use or sale ongoing.
Borrowing costs essentially refers to the interest related costs as well as all other costs that are incurred by an organization with regard funds borrowing.
there are two different treatments for the purpose of recognizing the borrowing related costs. The first method calls for capitalizing of borrowing costs into qualifying asset’s cost. The second treatments that has been prescribed is expensing of borrowing costs at the time of incurring it. This particular standard is applicable at the time of recognizing the borrowing costs. However, not every kind of borrowing costs can be capitalized. Borrowing costs, which are attributable directly to constructing, acquiring or producing of an asset that qualifies should be capitalized as part of that particular asset’s cost. In addition to this, once this kind of accounting related policy has been adopted, it must be applied on all the assets that qualify.
therefore, capitalized interest is the interest used to finance the construction of a long-term asset that an entity constructs for itself (such as a building).
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