Ind AS 23, Borrowing Costs | Difference Between AS 16 and Ind AS 23

Ind AS 23

Ind AS 23, Borrowing Costs: 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. Borrowing costs are interest and other costs that an entity incurs  in  connection with the borrowing of funds.

Recognition under Ind AS 23

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.

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

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.

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.

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:

  • it incurs expenditures for the asset;
  • it incurs borrowing costs; and
  • it undertakes activities that are necessary to prepare the asset for its intended use or

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

An entity shall cease capitalising borrowing costs when substantially all the activities necessary to prepare the qualifying asset for its  intended  use or  sale are complete.

An entity shall disclose

  • the amount of borrowing costs capitalised during the period; and
  • the capitalisation rate used to determine the amount  of  borrowing costs eligible for

Difference Between AS 16 and Ind AS 23

AS 16 IND AS 23
AS 16 explains the meaning of “substantial period of time”. This explanation is not included in IND AS 23.
AS 16 does not require the same. IND AS 23 requires the disclosure of capitalisation rate, used to determine the amount of borrowing costs eligible for capitalisation.
Does not provide for such exemption. Does not apply to borrowing costs directly attributable to qualifying asset measured at fair value. (eg: biological assets)
AS 16 does not contain similar explanation, because in India, there is no standard on Financial Reporting in Hyperinflationary Economies. IND AS 23 states that when the standard on Financial Reporting in Hyperinflationary Economies (Ind AS 29) is applied, part of the borrowing cost, that compensates for inflation should be expensed off.
Does not provides any exemption and is applicable to all borrowing costs that require substantial period of time to bring them in saleable conditon. IND AS 23 is not applicable to borrowing costs attributable to inventories, that are produced or manufactured, in large quantities and on repititive basis.
This specific provision is not there in the existing AS. Specifically states that in some circumstances, it is appropriate to combine the borrowings of the parent and its subsidiaries for computing a weighted average of the borrowing costs while in other circumstances, it is appropriate for each subsidiary to use a weighted average of the borrowing costs applicable to its own borrowings.
As per AS 16, Borrowing Costs, amongst other things, include the following:

(a) interest and commitment charges on bank borrowings and other short-term and long-term borrowings;

(b) amortisation of discounts or premiums relating to borrowings;

(c) amortisation of ancillary costs incurred in connection with the arrangement of borrowings;

In lieu of this, IND AS 23 states that Borrowing Costs incude interest expense calculated using effective interest method as described in IND AS 109.

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