TMI BlogBorrowing CostsX X X X Extracts X X X X X X X X Extracts X X X X ..... ties on a repetitive basis. Definitions 5 This Standard uses the following terms with the meanings specified: 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. 6 Borrowing costs may include: (a) interest expense calculated using the effective interest method as described in Ind AS 109, Financial Instruments; (b) [Refer Appendix 1] (c) [Refer Appendix 1] 3 [ (d) interest in respect of lease liabilities recognised in accordance with Ind AS 116, Leases; and ] (e) exchange differences arising from foreign currency borrowings to the extent that they are regarded as an adjustment to interest costs. 6A. With regard to exchange difference required to be treated as borrowing costs in accordance with paragraph 6(e), the manner of arriving at the adjustments stated therein shall be as follow s: (i) the adjustment should be of an amount which is equivalent to the extent to which the exchange loss does not exceed the difference between the cost of borrowing in fu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ying asset and to determine the borrowings that could otherwise have been avoided. Such a difficulty occurs, for example, when the financing activity of an entity is co-ordinated centrally. Difficulties also arise when a group uses a range of debt instruments to borrow funds at varying rates of interest, and lends those funds on various bases to other entities in the group. Other complications arise through the use of loans denominated in or linked to foreign currencies, when the group operates in highly inflationary economies, and from fluctuations in exchange rates. As a result, the determination of the amount of borrowing costs that are directly attributable to the acquisition of a qualifying asset is difficult and the exercise of judgement is required. 12 To the extent that an entity borrows funds specifically for the purpose of obtaining a qualifying asset, the entity 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. 13 The financing arrangements for a qualifying asset may result in an entity obta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... asset; (b) it incurs borrowing costs; and (c) it undertakes activities that are necessary to prepare the asset for its intended use or sale. 18 Expenditures on a qualifying asset include only those expenditures that have resulted in payments of cash, transfers of other assets or the assumption of interest-bearing liabilities. Expenditures are reduced by any progress payments received and grants received in connection with the asset (see Ind AS 20, Accounting for Government Grants and Disclosure of Government Assistance). The average carrying amount of the asset during a period, including borrowing costs previously capitalised, is normally a reasonable approximation of the expenditures to which the capitalisation rate is applied in that period. 19 The activities necessary to prepare the asset for its intended use or sale encompass more than the physical construction of the asset. They include technical and administrative work prior to the commencement of physical construction, such as the activities associated with obtaining permits prior to the commencement of the physical construction. However, such activities exclude the holding of an asset when no production or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch can be used individually, is an example of a qualifying asset for which each part is capable of being usable while construction continues on other parts. An example of a qualifying asset that needs to be complete before any part can be used is an industrial plant involving several processes which are carried out in sequence at different parts of the plant within the same site, such as a steel mill. Disclosure 26 An entity shall disclose: (a) the amount of borrowing costs capitalised during the period; and (b) the capitalisation rate used to determine the amount of borrowing costs eligible for capitalisation. 4 [ Transitional provisions 27-28 Omitted* (*Refer Appendix 1) 7 [ 28A Annual Improvements to Ind AS (2018) amended paragraph 14. An entity shall apply those amendments to borrowing costs incurred on or after the beginning of the annual reporting period in which the entity first applies those amendments. ] Effective date ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in Ind AS 23. ] ******************** Notes:- 1. Substituted vide F. No. 01/01/2009-CL-V(Part) - Dated 30-3-2016 before it was read as, 2. Appendix C, Service Concession Arrangements contained in Ind AS 115, Revenue from Contracts with Customers, makes reference to this Standard also. 2. Substituted vide F. No. 01/01/2009-CL-V(Part VI) Dated 28-03-2018 , w.e.f. 1st day of April, 2018, before it was read as, 1 [ 2 Appendix A, Service Concession Arrangements contained in Ind AS 11, Construction Contracts, makes reference to this Standard also.] 3. Substituted vide NOTIFICATION No. [F. No. 01/01/2009-CL-V-(Part VII)] dated 30-03-2019 w.e.f. 01-04-2019 before it was read as (d) finance charges in respect of finance leases recognised in accordance with Ind AS 17, Leases; and 4. Inserted vide NOTIFICATION No. [F. No. 01/01/2009-CL-V-(Part VII)] dated 30-03-2019 w.e.f. 01-04-2019 5. Substituted vide NOTIFICATION No. [F. No. 01/01/2009-CL-V-(Part VII)] dated 30-03-2019 w.e.f. 01-04-2019 before it was read as 3 The transitional provisions given in IAS 23 have not been given in Ind AS 23, since all transitional prov ..... X X X X Extracts X X X X X X X X Extracts X X X X
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