IAS 23 – Borrowing Costs

3 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:

  1. it incurs expenditures for the asset;
  2. it incurs borrowing costs; and
  3. it undertakes activities that are necessary to prepare the asset for its intended use or sale.

The activities necessary to bring the asset in useful or saleable conditions include technical and administrative work prior to the commencement of physical construction of the asset.

However, it does not include such period of time when there is no such production or development is taking place that changes asset’s condition. Any borrowing cost incurred for such period is not eligible for capitalization.

3.1 Government grants and progress payments

If entity receives any progress payment or government grant against the expenditures on the qualifying asset then the total expenditures will be reduced with the same. Borrowing cost for capitalization purposes on expenditures incurred shall be determined after such progress payments and government grants are dealt with according to entity’s accounting policies.

4 Suspension of capitalisation

An entity shall suspend capitalisation of borrowing costs during extended periods in which it suspends active development of a qualifying asset.

An entity may incur borrowing costs during an extended period in which it suspends the activities necessary to prepare an asset for its intended use or sale. Such costs are costs of holding partially completed assets and do not qualify for capitalisation.

4.1 When capitalization is NOT suspended?

  1. When entity is carrying out significant technical and administrative work
  2. When delay is part of the construction or production of asset to bring the asset into useful or saleable condition. Or such delay is normal for the process.