PRC-1 · Chapter 7 · Question 45 of 100
Are borrowing costs (such as interest on a short-term bank loan used to buy raw materials) included in the cost of inventory?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: B) No, they are usually recognized as an interest expense in the period they are incurred.
Explanation
Under standard circumstances for routine inventories, borrowing costs are not capitalized. They are only capitalized if the inventory is a 'qualifying asset' taking a substantial period to get ready (per IAS 23), which is rare for standard raw materials.
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