Borrowing cost may include: [IAS 23.6]
- interest expense calculated by the effective interest method under IAS 39,
- finance charges in respect of finance leases recognised in accordance with IAS 17 Leases, and
- exchange differences arising from foreign currency borrowings to the extent that they are regarded as an adjustment to interest costs
IAS 23 Borrowing Costs requires that borrowing costs directly attributable to the acquisition, construction or production of a ‘qualifying asset’ (one that necessarily takes a substantial period of time to get ready for its intended use or sale) are to be capitalised or included in the cost of the asset once they meet certain conditions.
conditions that must be met before an entity can commence to capitalise borrowing cost.
Capitalization should commence when:
· expenditures are being incurred,
· borrowing costs are being incurred and
activities that are necessary to prepare the asset for its intended use or sale are in progress (may include some activities prior to commencement of physical production). [IAS 23.17-18]