Indian Accounting Standard 23, Borrowing Costs
Borrowing costs are interest and other costs that an entity incurs in connection with the borrowing of funds.
A qualifying asset is an asset that necessarily takes a substantial period of time to get ready for its intended use or sale.
An entity shall capitalise borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset as part of the cost of that asset. An entity shall recognise other borrowing costs as an expense in the period in which it incurs them.
Borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset shall be included in the cost of that asset. Such borrowing costs shall be capitalised as part of the cost of the asset when it is probable that they will result in future economic benefits to the entity and the costs can be measured reliably.
Specific Borrowings –The borrowing costs eligible for capitalisation are the actual borrowing costs incurred on that borrowing during the period reduced by any investment income on the temporary investment of those borrowings.
General Borrowings –The entity shall determine the amount of borrowing costs eligible for capitalisation by applying a capitalisation rate to the expenditures on that asset.
The capitalisation rate shall be the weighted average of the borrowing costs applicable to all borrowings of the entity that are outstanding during the period. However, an entity shall exclude from this calculation borrowing costs applicable to borrowings made specifically for the purpose of obtaining a qualifying asset until substantially all the activities necessary to prepare that asset for its intended use or sale are complete. The amount of borrowing costs that an entity capitalises during a period shall not exceed the amount of borrowing costs it incurred during that period.
Commencement of capitalisation
An entity shall begin 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;
b) it incurs borrowing costs; and
c) it undertakes activities that are necessary to prepare the asset for its intended use or sale.
Suspension of capitalisation
An entity shall suspend capitalisation of borrowing costs during extended periods in which it suspends active development of a qualifying asset.
Cessation of capitalisation
An entity shall cease capitalising borrowing costs when substantially all the activities necessary to prepare the qualifying asset for its intended use or sale are complete.
An entity shall 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.