File Content -
Indian Accounting Standard (Ind AS) 23
(This Indian Accounting Standard includes paragraphs set in bold type and plain type,
which have equal authority. Paragraphs in bold type indicate the main principles.)
1 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 recognised as an expense.
2 An entity shall apply this Standard in accounting for borrowing costs.
3 The Standard does not deal with the actual or imputed cost of equity, including
preferred capital not classified as a liability.
4 An entity is not required to apply the Standard to borrowing costs directly
attributable to the acquisition, construction or production of:
(a) a qualifying asset measured at fair value, for example, a biological asset
within the scope of Ind AS 41 Agriculture; or
(b) inventories that are manufactured, or otherwise produced, in large
quantities on a repetitive basis.
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]
(d) finance charges in respect of finance leases recognised in accordance with
Ind AS 17, 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 follows:
(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 functional currency when compared
to the cost of borrowing in a foreign currency.
(ii) where there is an unrealised exchange loss which is treated as an
adjustment to interest and subsequently there is a realised or
unrealised gain in respect of the settlement or translation of the same
borrowing, the gain to the extent of the loss previously recognised as
an adjustment should also be recognised as an adjustment to interest.
7 Depending on the circumstances, any of the following may be qualifying assets:
(b) manufacturing plants
(c) power generation facilities
(d) intangible assets
(e) investment properties
(f) bearer plants.
Financial assets, and inventories that are manufactured, or otherwise produced,
over a short period of time, are not qualifying assets. Assets that are ready for
their intended use or sale when acquired are not qualifying assets.
8 An entity shall capitalise borrowing costs that are directly attributable to the
acquisition, construction or production of a qualifying asset as part of the
cost of that asset. An entity shall recognise other borrowing costs as an
expense in the period in which it incurs them.
9 Borrowing costs that are directly attributable to the acquisition, construction or
production of a qualifying asset are included in the cost of that asset. Such
borrowing costs are capitalised as part of the cost of the asset when it is probable
that they will result in future economic benefits to the entity and the costs can be
measured reliably. When an entity applies Ind AS 29 Financial Reporting in
Hyperinflationary Economies, it recognises as an expense the part of borrowing
costs that compensates for inflation during the same period in accordance with
paragraph 21 of that Standard.
Borrowing costs eligible for capitalisation
10 The borrowing costs that are directly attributable to the acquisition, construction
or production of a qualifying asset are those borrowing costs that would have
been avoided if the expenditure on the qualifying asset had not been made. When
an entity borrows funds specifically for the purpose of obtaining a particular
qualifying asset, the borrowing costs that directly relate to that qualifying asset
can be readily identified.
11 It may be difficult to identify a direct relationship between particular borrowings
and a qualifying 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
obtaining borrowed funds and incurring associated borrowing costs before some
or all of the funds are used for expenditures on the qualifying asset. In such
circumstances, the funds are often temporarily invested pending their expenditure
on the qualifying asset. In determining the amount of borrowing costs eligible for
capitalisation during a period, any investment income earned on such funds is
deducted from the borrowing costs incurred.
14 To the extent that an entity borrows funds generally and uses them for the
purpose of obtaining a qualifying asset, the entity shall determine the amount
of borrowing costs eligible for capitalisation by applying a capitalisation rate
to the expenditures on that asset. The capitalisation rate shall be the
weighted average of the borrowing costs applicable to the borrowings of the
entity that are outstanding during the period, other than borrowings made
specifically for the purpose of obtaining a qualifying asset. The amount of
borrowing costs that an entity capitalises during a period shall not exceed the
amount of borrowing costs it incurred during that period.
15 In some circumstances, it is appropriate to include all borrowings of the parent
and its subsidiaries when computing a weighted average of the borrowing costs;
in other circumstances, it is appropriate for each subsidiary to use a weighted
average of the borrowing costs applicable to its own borrowings.
Excess of the carrying amount of the qualifying asset over
16 When the carrying amount or the expected ultimate cost of the qualifying asset
exceeds its recoverable amount or net realisable value, the carrying amount is
written down or written off in accordance with the requirements of other
Standards. In certain circumstances, the amount of the write-down or write-off is
written back in accordance with those other Standards.
Commencement of capitalisation
17 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
(a) it incurs expenditures for the 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 development that changes the asset’s condition is taking
place. For example, borrowing costs incurred while land is under development are
capitalised during the period in which activities related to the development are
being undertaken. However, borrowing costs incurred while land acquired for
building purposes is held without any associated development activity do not
qualify for capitalisation.
Suspension of capitalisation
20 An entity shall suspend capitalisation of borrowing costs during extended
periods in which it suspends active development of a qualifying asset.
21 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. However, an entity does not normally suspend capitalising
borrowing costs during a period when it carries out substantial technical and
administrative work. An entity also does not suspend capitalising borrowing costs
when a temporary delay is a necessary part of the process of getting an asset ready
for its intended use or sale. For example, capitalisation continues during the
extended period that high water levels delay construction of a bridge, if such high
water levels are common during the construction period in the geographical
Cessation of capitalisation
22 An entity shall cease capitalising borrowing costs when substantially all the
activities necessary to prepare the qualifying asset for its intended use or sale
23 An asset is normally ready for its intended use or sale when the physical
construction of the asset is complete even though routine administrative work
might still continue. If minor modifications, such as the decoration of a property
to the purchaser’s or user’s specification, are all that are outstanding, this
indicates that substantially all the activities are complete.
24 When an entity completes the construction of a qualifying asset in parts and
each part is capable of being used while construction continues on other
parts, the entity shall cease capitalising borrowing costs when it completes
substantially all the activities necessary to prepare that part for its intended
use or sale.
25 A business park comprising several buildings, each of which 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.
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.
References to matters contained in other Indian Accounting Standards
This Appendix is an integral part of the Ind AS.
1. Appendix A, Changes in Existing Decommissioning, Restoration and Similar
Liabilities),contained in Ind AS 16, Property, Plant and Equipment, makes
reference to this Standard also.
2. Appendix C, Service Concession Arrangements contained in Ind AS 115,
Revenue from Contracts with Customers, makes reference to this Standard also.
Note: This Appendix is not a part of the Indian Accounting Standard. The purpose of
this Appendix is only to bring out the major differences, if any, between Indian
Accounting Standard (Ind AS) 23 and the corresponding International Accounting
Standard (IAS) 23, Borrowing Costs, issued by the International Accounting Standards
Comparison with IAS 23, Borrowing Costs
1 IAS 23 provides no guidance as to how the adjustment prescribed in paragraph 6(e)
is to be determined. Paragraph 6A is added in Ind AS 23 to provide the guidance.
2 The following paragraph numbers appear as ‘Deleted’ in IAS 23. In order to maintain
consistency with paragraph numbers of IAS 23, the paragraph numbers are retained
in Ind AS 23 :
(i) paragraph 6(b)
(ii) paragraph 6(c)
3 The transitional provisions given in IAS 23 have not been given in Ind AS 23, since
all transitional provisions related to Ind ASs, wherever considered appropriate have
been included in Ind AS 101, First-time Adoption of Indian Accounting Standards,
corresponding to IFRS 1, First-time Adoption of International Financial Reporting