Capitalising Borrowing Costs

What is the accounting treatment when an entity incurs further costs on existing fixed assets? When should it be expensed and when can it be capitalized?

Keywords: Mazars, Thailand, Accounting, FAP, TFRS, NPAEs

19 July 2018


On 1 January 2017, Company A borrowed THB 20 million from a local bank for the construction of a new factory. The loan subject to interest at a rate of 7.50% per annum.

During the period of construction some of the funds borrowed were temporarily invested. As a result Company A received investment income of THB 275,000.

The factory was completed at the end of November 2017. Company A capitalised the interest expense on the loan of THB 1,375,000 (20,000,000 x 7.50% x 11/12) as part of the cost of constructing the new factory.


How should Company A recognise and capitalise the borrowing costs in the financial statements?


Paragraph 12 of the Thai Financial Reporting Standards for Non-Publicly Accountable Entities (TFRS for NPAEs) states that an entity that borrows funds specifically for the purpose of obtaining a qualifying asset shall determine the amount of borrowing costs eligible for capitalisation as the actual borrowing costs incurred on that borrowing during the period less any investment income on the temporary investment of those borrowings.

Company A must deduct investment income THB 275,000 from the borrowing costs. As a result, the amount of borrowing costs eligible for capitalisation is calculated as follows:


Unit: Baht

Interest expenses


Less interest income


Borrowing costs capitalised


References: and TFRS for NPAEs