Each Accounting Standard offers wide variety of practical applications to the stakeholders in respect of full disclosure and transparency. Therefore, I hereby try to summarize various dimensions with regard to the Accounting Standard related with Ind As-23 : Borrowing Costs (By incorporating Changes as per Companies (Indian Accounting Standards) Amendments Rules 2021) .

1. The relevant Accounting Standards relating to Borrowing Costs are the following:-

a. INDAS 23

b. IAS 23

c. IAS 16

Borrowing Cost (Ind AS-23)

II .Need and Objective

Entities has to borrow funds in order to acquire, build and install PPE and these assets take time to make them usable or saleable, therefore the entity incur the interest (cost on borrowings) to acquire and build these assets .The objective of this standard is to prescribe the treatment of borrowing cost (interest +other cost) in accounting, whether the cost of borrowing should be included in the cost of assets or not. Borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset form part of the cost of that asset. Other borrowing costs are recognized as an expense.

III. Differences between Ind AS-23 and IAS -23

Ind AS-23 IAS -23
1. Allows only single statement Approach for preparing statement of Profit or loss 1.  Provides option either to follow single statement Approach or to follow two statement approach for preparing statement of profit or loss
2. Relevant terms are Statement of profit and loss and balance sheet 2.  Relevant terms are Statement of Comprehensive Income and Statement of Financial Position

No Major differences between IND AS 34 and IAS 34 except the above.

IV. Definitions

1. Borrowing costs

Borrowing costs are interest and other costs that an entity incurs in connection with the borrowing of funds

2. Qualifying asset

 It is an asset that necessarily takes a substantial period of time to get ready for its intended use or sale,

Examples –


Manufacturing plants

Power generation facilities

Intangible assets

Investment properties.

3. Borrowing cost may include

(a) Interest expense calculated using the effective interest method as described Ind AS 109 as the case may be

(b) Interest in respect of lease liabilities recognized in accordance with Ind AS 116 Leases

(c) Exchange differences arising from foreign currency borrowings to the extent that they are regarded as an adjustment to interest costs

4. Substantial Period of Time

It is based on facts and circumstances of each case. Ordinarily Substantial period =A Period of 12 months.

V. Recognition and measurement, Capitalization of Borrowing Costs, and Disclosures are the most important Concepts relating to those standards.

VI. Recognition

A .Borrowing costs directly attributable to the acquisition, Construction or

 Production of qualifying assets must be capitalized. Borrowing Costs should be capitalized. That means, Borrowing Costs should be included in the Cost of Property, Plant and Equipment (PPE is the new word for Assets).Please include Borrowing Cost in the cost of PPE as follows.

Cost of PPE (IndAS-16and IAS-16) means the following:-

Purchase price

Less: (i) Trade discounts.

(ii) Rebates


(i). Import duties

(ii) Non-refundable purchase taxes

(iii) Legal fees for purchase contract and recording ownership

(iv)Tittle guarantee insurance

(v).Directly attributable costs of bringing the assets to working condition such as:-

a. Employee benefit costs

b. Site preparation costs

c. Initial delivery costs

d. Installation Charges

e. Initial handling costs

f. Cost of testing

Less: Sale Proceeds of goods produced in the testing process.

g. Professional fees (Architects, engineers)

h. Transportation costs.

i. Cost of Technical Staff to start operation of the plant.

(vi).Initial estimate of unavoidable cost of dismantling and removing Asset and restoring the site of installation (Using technique of Present Value)

 (vii) Borrowing costs.

B. Other Borrowing costs are expenses in the statement of profit and loss

C. When an entity applies IAS 29 Financial Reporting in Hyperinflationary Economies, the following concept is important in those conditions

It recognizes as an expense the part of borrowing costs that compensates for inflation during the same period in accordance with paragraph 21 of that Standard.

VII. Measurement

  It depends on the following

i. Funds Borrowed Specifically

ii. Funds Borrowed Generally.

Funds Borrowed Specifically.

Amount of Borrowing Cost eligible for Capitalization =Actual interest plus related expenses Incurred less Investment Income from Excess idle Borrowings.

Funds Borrowed Generally.

 Amount of Borrowing cost eligible for Capitalization =Amount of Qualifying Asset × Weighted Average Capitalization Rate

 Weighted Average Capitalization Rate=Total borrowing Cost/Total average outstanding ×100.

 Amount of Borrowing cost capitalized cannot exceed the amount of borrowing cost incurred during that period.

VIII. Capitalization of Borrowing Cost.

It includes the following:-

a. Commencement

b. Suspension

c. Cessation

a. Borrowing cost capitalization would be started when the entity first meets all the following conditions

– Expenditure on qualifying asset is being incurred

– Borrowing costs are being incurred

– – Activities essential to prepare asset for its intended use are in progress.

b. Borrowing cost capitalization should be suspended

If active development is interrupted for any extended period (excluding temporary delays or for period when substantial administrative or technical work is being done)

c. Borrowing cost capitalization should be stopped

 When substantially all activities necessary to prepare the qualifying asset for its use or sale are complete – It may be completed in parts, if each part can be used or sold separately.

IX. Disclosures.

An entity shall disclose:

(a) The amount of borrowing costs capitalized during the period;

(b) The Weighted Capitalization rate used to determine the amount of Borrowing Costs eligible for capitalization.

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September 2022