TMI BlogICDS IX : Borrowing CostsX X X X Extracts X X X X X X X X Extracts X X X X ..... d AS 23 specifically excludes only actual or imputed cost of equity and of preferred capital not classified as a liability. This ICDS primarily deals with the timing and the circumstances under which borrowing costs are to be capitalised. Borrowing costs: Borrowing costs includes interest, commitment charges on borrowings, and discounts or premiums related to the borrowings. It needs to be noted that so far as discounts or premiums relating to borrowings, and ancillary costs incurred in connection with the arrangement of borrowings, only the amortised amount is to be considered as borrowing costs, and not the entire amount of discount, premium or ancillary costs. In effect, therefore, the ICDS covers only deferred expenditure for t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rrowing costs incurred during the period, on funds borrowed specifically for the purposes of acquisition, construction or production of a qualifying asset, are to be capitalised. The ICDS provides a formula for computing borrowing costs on general borrowings. It presumes that qualifying assets are acquired in the middle of the year, for the purposes of computing the borrowing cost attributable to such qualifying assets. A X B/C Where A = Borrowing cost incurred during the previous year (except on borrowing directly relatable to specific purposes) B = The average of cost of qualifying assets as appearing in the balance sheet of a person on the first day and the last day of previous year (excluding qualifying assets which are dir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cquisition, construction or production, general borrowing is not required to be capitalised. 4. Commencement of Capitalisation:- (a) In case of borrowing costs specifically related to acquisition of assets, the period from which borrowing costs are to be counted begins with the date on which funds are borrowed. Borrowing of funds would mean actual drawing of funds. Borrowing costs on loans utilised for payment of advances for acquisition of assets would need to be added to the cost of assets commencing from the date of borrowing, which may be before the date of acquisition of the asset, up to the date of asset being first put to use. Interest payable on borrowings taken for acquisition of a qualifying asset relating to the per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed part is capable of being used while construction continues for the other parts, capitalisation of borrowing costs in relation to a part shall cease:- in case of part of a qualifying asset when such part of a qualifying asset is first put to use in case of part of inventory when substantially all the activities necessary to prepare such part of inventory for its intended sale are complete. For example a business park comprising several buildings, each of which can be used individually, while construction may continue on other parts. 6. Disclosure:- The following disclosure shall be made in respect of borrowing costs, namely:- the accounting policy adopted for borrowing costs; and the amount of borrowing cost ..... X X X X Extracts X X X X X X X X Extracts X X X X
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