Group Members

• M Kamran Shabbir 4458-FMS/MBA/S10

• Hamid Ijaz 4536-FMS/MBA/S10

Borrowing Costs (IAS-23)

What is (IAS-23)?Borrowing cost prescribes the criteria for determining

whether borrowing cost can be capitalized as a part of cost of acquiring or producing a qualifying asset

Introduction To (Borrowing Cost)

• Borrowing cost are the interest and other costs that are incurred by an

entity in connection with borrowing of funds.

Examples Of Borrowing Cost

• Bank Over Draft

• Amortization of discount

• Financial Charge in respect of financial lease recognized in accordance with IAS-17 lease

• Exchange differences arises from foreign currency borrowing to the extent that may regarded as an adjustment to interest cost.

Introduction to Qualifying Asset

• Qualifying asset is an asset that substantially takes a period of time to get ready for use or sale.

Examples of Qualifying Assets

• Inventories that require substantial period of time for manufacturing

• Manufacturing Plant

• Power generation facility

• Intangible Assets

• Investment in Properties

TYPES OF Borrowing

• General Borrowing (Capitalization Rate)

• Specific Borrowing

Calculation’s

• General Borrowing

(Capitalization Rate)=[Total Interest/Weight

of Total loan outstanding]×100

• Specific Borrowing

Interest Paid ×××(-)Interest Income ×××Borrowing Cost ×××

Borrowing Eligible For Capitalization• Qualifying asset is an essential element for the capitalization

of borrowing cost.

• Borrowing and Funding organized Centrally

• Specifically borrowing to finance a single Qualified Asset

• Capitalized Borrowing cost is less than the borrowing cost incured

Suspension of Capitalization

• When active development is interrupted

• Example; capitalization would be suspended during an interruption to the construction of a bridge during very high water levels, which are common in the area where construction is taking place.

• However, capitalization of borrowing costs should not be suspended when there is only a tempo-rary delay that is caused by certain expected and anticipated reasons, such as while an asset is getting ready for its intended use.

CESSATION OF CAPITALIZATION

• When activity is necessary for making an asset or stopped

• Asset is ready for use or sale

• Activities like decoration and routine administrative work do not come under the necessary activity for making an asset so asset will be considered complete

• Capitalization Ceases only on those parts which are complete and ready for use and the parts which are un complete borrowing cost kept on capitalizing on those parts

Disclosure

• Accounting policy for the recognition of borrowing cost

• The amount of borrowing cost to be capitalized

• Capitalization rate all above mentioned themes are to be disclosed in the disclosure of firm and entity