ISSUES ON CAPITALISATION OF BORROWING COSTS

IAS 23 Borrowing Costs prescribes the accounting when borrowings are made to acquire or construct an asset. The core principle of the standard is that borrowing costs that are directly attributable to the acquisition or construction of a qualifying asset must be capitalised. Even though in theory this principle seems simple to apply, its practical implementation often raises questions for which IAS 23 doesn't give clear guidance. Challenges in applying this standard are related to specific issues such as identifying the qualifying assets, calculating the total borrowing costs eligible for capitalisation, when to start or to suspend capitalisation, borrowing costs in separate and consolidated financial statements. Some of these practical challenges are discussed in this article.