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.- 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
- 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:
| 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. |