At the end of its September meeting, the IFRS IC decided to publish two agenda decisions relating to IAS 23, Borrowing Costs.
Keywords: Mazars, Thailand, IFRS, IFRS IC, IAS 23, Borrowing Costs
26 November 2018
The first decision relates to the amount of borrowing costs eligible for capitalisation when an entity that initially has no borrowings is constructing a qualified asset, and borrows funds generally part-way through construction. The question was whether the entity should include expenditures for the asset before it obtained the general borrowings when determining the amount of borrowing costs eligible for capitalisation.
In accordance with paragraph 17 of IAS 23, which stipulates when an entity should begin capitalising borrowing costs, the Committee concluded that the entity would not begin capitalising borrowing costs until it has obtained the general borrowings, but once it has obtained it, the entity does not disregard expenditures on the qualifying asset incurred before it obtains the general borrowings when determining the expenditures eligible for capitalisation.
The second decision relates to the point at which an entity ceases capitalising borrowing costs on land, when the land has been acquired in order to construct a building on it. The question was whether the entity should cease capitalising borrowing costs incurred in respect of land expenditures once it starts construction of the building, or whether it should continue to capitalise them during construction.
The Committee concluded that if the land is not capable of being used for its intended purpose during the construction phase, the land and building should be considered together when determining when to cease capitalising borrowing costs on land expenditures.