TWP 2 : Ind AS 23 - Borrowing Costs - Students

Here is a comprehensive exam-oriented summary of Ind AS 23 (Borrowing Costs):

1. Core Principle: Borrowing costs that are directly attributable to the acquisition, construction, or production of a QUALIFYING ASSET must be CAPITALISED as part of the cost of that asset. All other borrowing costs are expensed in P&L.

2. Qualifying Asset: An asset that necessarily takes a SUBSTANTIAL PERIOD OF TIME to get ready for its intended use or sale. Examples:
- Manufacturing plants under construction
- Power plants
- Investment properties under construction
- Made-to-order inventories requiring substantial time
- NOT qualifying: Assets routinely manufactured, assets ready for use when acquired

3. Capitalisation Rate: When general borrowings are used for the qualifying asset:
Capitalisation Rate = Total borrowing costs on general pool / Weighted Average outstanding general borrowings
Amount capitalised = Capitalisation Rate × Weighted Average expenditure on qualifying asset
Subject to: Actual borrowing costs incurred (cannot capitalise more than actual costs)

4. Start of Capitalisation: When ALL THREE conditions are met:
- Expenditure is being incurred on the asset
- Borrowing costs are being incurred
- Activities necessary to prepare the asset are in progress

5. Suspension of Capitalisation: Suspend during EXTENDED periods of interruption (not temporary interruptions like monsoon break in construction).

6. Cessation of Capitalisation: When substantially all activities necessary to prepare the qualifying asset for its intended use/sale are complete.

7. Disclosures: Amount of borrowing costs capitalised during the period and the capitalisation rate used.

8. Key Difference from AS 16: Ind AS 23 is largely aligned with AS 16 — major difference is that Ind AS 23 uses the term 'qualifying asset' and specifically excludes biological assets, investment property measured at fair value, and inventories that are manufactured in large quantities on a repetitive basis.

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TWP 2 : Ind AS 23 - Borrowing Costs

The Weekend Professor

Aashok Kumar Sharma

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