[ecis2016.org] The Ind AS 23 standard deals with accounting of borrowing costs.
Companies preparing their financial statements have to provide details about their borrowing costs and must abide by the rules prescribed under the Indian accounting standard 23, better known with its short form, Ind As 23.
You are reading: All about Indian accounting standard 23 (Ind AS 23)
What is borrowing cost?
The standard defines borrowing costs as the costs that could be directly attributable to the acquisition, construction or production of a qualifying asset form part of the cost of that asset. Borrowing costs may include:
*Interest expense calculated using the effective interest method
*Finance charges with respect to finance leases recognised in accordance with leases
*Exchange differences arising from foreign currency borrowings to the extent that they are regarded as an adjustment to interest costs.
Other borrowing costs are recognised as an expense.
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Ind AS 23 scope
Companies have to apply this standard in accounting for borrowing costs but the Ind AS 23 doesn’t deal with the actual or imputed cost of equity, including preferred capital not classified as a liability.
Companies also aren’t required to apply the standard to borrowing costs directly attributable to the acquisition, construction or production of a qualifying asset measured at fair value and inventories that are manufactured or otherwise produced in large quantities on a repetitive basis.
Recognition
Borrowing costs are capitalised as part of the cost of the asset when it’s probable that they will result in future economic benefits to the company and the costs can be measured reliably.
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Start of capitalisation
Companies have to start capitalising borrowing costs as part of the cost of a qualifying asset on the commencement date. The commencement date for capitalisation is the date when the entity first meets all of the following conditions:
(a) It incurs expenditures for the asset
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(b) It incurs borrowing costs
(c) It undertakes activities that are necessary to prepare the asset for its intended use or sale
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Suspension and cessation of capitalisation
Companies must suspend capitalisation of borrowing costs during extended periods in which it suspends active development of a qualifying asset.
They should on the other hand cease capitalising borrowing costs when substantially all the activities necessary to prepare the qualifying asset for its intended use or sale are complete. When a company entity completes the construction of a qualifying asset in parts and each part is capable of being used while construction continues on other parts, it should cease capitalising borrowing costs when it completes substantially all the activities necessary to prepare that part for its intended use or sale.
Disclosure under Ind AS 23
In their financial statements pertaining to borrowing costs, companies have to disclose the amount of borrowing costs capitalised during the period and the capitalisation rate used to determine the amount of borrowing costs eligible for capitalisation.
Other standards that relate to borrowing cost accounting
In addition to Ind As 23, other applicable accounting standards to borrowing costs are IAS 23 and Ind AS 16.
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