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Hi there! What is the best option between capitalising and expensing of borrowing costs of a three year period project as per IAS 23?

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Question added by Abdulrahman Chiwalo , Senior Auditor-Assurance , Ernst & Young LLP
Date Posted: 2013/04/30
Mohammad Ashfaq
by Mohammad Ashfaq , Financial Controller , Union COOP

Capitalize cost of borrowing to the extent assets, as defined in IAS 16, are finance from that borrowings.

Mohammad Ibrahim, CMA, CertIFR
by Mohammad Ibrahim, CMA, CertIFR , Accounting Operation Team Leader , KFH ( Kuwait Finance House )

Borrowing Cost : that are directly Related to the acquisition, construction or production of a qualifying asset( which it take a period of time to be ready for its intended use or sale ) should be capitalised . 

Mohd Asim
by Mohd Asim , Assurance Consultant , Ernst & Young LLP

borrowing cost incurred until the asset is purchased shoud be capitalized and treated as part of the cost of asset...after the assetis put to use the borrowing cost should be treated as revenue ependiture and charged to p/l

mohamed mansour
by mohamed mansour , chief accountant , el khatab Co for mills.

to capitalize borrowing cost at first the asset must be one of his feature to take a lot of time in his construction Example If we are about to buy a car as an asset we don't have the right to capitalize borrowing cost because the process didn't take a long time also the construction of the asset must be in progress to capitalize so if we stopped construction of the asset without reasons out of our control we have to stop capitalization also we have to stop capitalization if The asset complete and become ready for use whether we used it or no.

Fouzan Qadeer
by Fouzan Qadeer , Corporate Financial Analyst , Balubaid Group

Borrowing costs1 that are directly attributable to the acquisition, construction or production of a qualifying asset2 form part of the cost of that asset and, therefore, should be capitalised. Other borrowing costs are recognised as an expense. [IAS23.8]

 

1 Borrowing cost may include: [IAS23.6] interest expense calculated by the effective interest method under IAS39, finance charges in respect of finance leases recognised in accordance with IAS17 Leases, and exchange differences arising from foreign currency borrowings to the extent that they are regarded as an adjustment to interest costs.

 

 

2 A qualifying asset is an asset that takes a substantial period of time to get ready for its intended use or sale. [IAS23.5] That could be property, plant, and equipment and investment property during the construction period, intangible assets during the development period, or "made-to-order" inventories. [IAS23.6]

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