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Assets · IAS 23

IAS 23 Borrowing Costs

Summary, key points, exam traps and a worked example — written for ICAP, ACCA, ICAI, CIMA and ICAEW students.

On this page
  1. Objective
  2. Scope
  3. Key definitions
  4. Recognition & measurement
  5. Key disclosures
  6. Common exam traps
  7. Worked example
  8. Related standards
  9. Practise MCQs

Objective

Requires borrowing costs directly attributable to acquiring, constructing or producing a qualifying asset to be included in its cost; other borrowing costs are expensed.

Scope

  • Interest and other costs incurred in connection with borrowing funds, including interest on lease liabilities and certain exchange differences.
  • Optional exemption for qualifying assets measured at fair value and for inventories produced in large quantities on a repetitive basis.

Key definitions

Qualifying asset
An asset that necessarily takes a substantial period of time to get ready for its intended use or sale (e.g. a factory, power station or investment property under construction).
Capitalisation rate
The weighted average cost of the entity's general borrowings outstanding during the period, used for funds borrowed generally.

Recognition & measurement

Capitalisation

  • Specific borrowings: capitalise the actual borrowing costs incurred, less any investment income on temporary investment of those funds.
  • General borrowings: apply the capitalisation rate to expenditure on the asset; the amount capitalised cannot exceed total borrowing costs incurred.
  • Start capitalising when expenditure and borrowing costs are being incurred and activities to prepare the asset are under way.
  • Suspend during extended periods when active development is paused (not for normal, expected delays).
  • Stop when substantially all activities needed to prepare the asset are complete.
  • Assets ready for use when acquired, and financial assets, are not qualifying assets.

Key disclosures

  • Amount of borrowing costs capitalised in the period.
  • Capitalisation rate used for general borrowings.

Common exam traps

  • Investment income earned on temporarily invested specific borrowings reduces the amount capitalised.
  • Capitalisation continues during temporary delays that are part of the normal process (e.g. waiting for concrete to set).
  • Once the asset is complete, further interest is expensed even if the asset is not yet in use.

Worked example: Specific borrowing

Scenario. An entity borrows $1,000,000 at 8% on 1 January to build a factory. Construction runs all year. Surplus funds earned $10,000 of interest while temporarily invested.

  1. Interest incurred = 1,000,000 × 8% = $80,000.
  2. Less investment income = $10,000.

Answer: Capitalise $70,000 as part of the factory's cost.

Practise MCQs on this standard

Test your understanding of IAS 23 with free chapter-wise MCQs and explanations in these question banks.

CAF-1 Financial Accounting and ReportingICAP CAFACCA FA Financial AccountingACCAACCA FR Financial ReportingACCACAF-6 Corporate ReportingICAP CAFCIMA BA3 Fundamentals of Financial AccountingCIMA Certificate in Business AccountingICAEW AF Accounting FundamentalsICAEW ACA Certificate LevelCA Inter P1 Advanced AccountingICAI CA Intermediate

ICAI CA Intermediate examines Indian Accounting Standards, which are based on but can differ from IFRS. Check your syllabus.

Read the official IAS 23 text on ifrs.org