What is IND AS 23? Accounting Standards – CA Final

IND AS 23,  Borrowing Costs, CA Final
Accounting Standards

What is IND AS 23? Accounting Standards

The Accounting Standards that are relevant and related to Borrowing Costs are the following:-

a. INDAS 23

b. IAS 23

c. AS 16

There is no significant distinction between INDAS 23 and IAS 23. Therefore, the descriptions below relate to both INDAS 23 and IAS 23.

Profit and loss statements and other Comprehensive income statements, Statement of Equity modifications and Statement of Financial Position are the fresh names of IND AS and IAS financial statements.

Costs for borrowing should be capitalized. This implies that borrowing costs should be included in the price of ownership, plant and equipment (PPE is the new term for assets). Please include Borrowing Cost in the cost of PPE as follows.

Cost of PPE (IndAS-16and IAS-16) means the following:-

Purchase price


i. Rebates

ii. Trade discounts.


i. Import duties

ii. Legal fees for purchase contract and recording ownership

iii. Title guarantee insurance

iv. Non-refundable purchase taxes

v. The directly attributable expenses of putting the property into working condition, such as:-

  • Employee benefit costs
  • Initial delivery costs
  • Initial handling costs
  • Site preparation costs
  • Installation Charges
  • Cost of testing

Less: Sale Proceedings of goods produced in the testing process.

  • directly attributable
  • Professional fees (Architects, engineers)
  • Directly attributable Cost of Technical Staff to start operation of the plant.

vi. Borrowing costs.

vii. Initial estimation of the inevitable price of dismantling and disposal of assets and restoration of the assembly site (Using the technique of Present Value)

Read Financial Swap important for CA Students

1. Definition

Borrowing costs that are directly attributable to the purchase, construction or manufacture of a qualifying asset are the part of the cost of that asset. Other borrowing costs are recognized or considered as an expense.

A. Qualifying asset

It is defined as an asset that necessarily takes a substantial period of time to get ready for its planned use or sale, Examples

a. Inventories

b. Power generation facilities

c. Manufacturing plants

d. Investment properties

e. Intangible assets


B. Borrowing costs may include

a. Interest expenses calculated using the effective interest method as defined in Ind AS 109 or IFRS 9 as the case may be

b. Interest in respect of leasing liabilities recognized in accordance with Ind AS 116 Leases or IFRS 16 Leases

c. Exchange differences resulting due to foreign currency borrowings to the extent that they are considered an adjustment to interest costs

C. Substantial Period of Time

It is based on the facts and circumstances of each case.

Ordinarily Substantial period = A Period/ Span of 12 months.

2. Recognition and measurement, Disclosures and Capitalization of Borrowing Costs are the most
important concepts relating to those standards.

3. Recognition

Borrowing costs are directly attributable

a. To the acquisition,

b. Production of qualifying assets must be capitalized or

c. Construction

Other Borrowing costs include the expenses in the statement of profit and loss

When an entity/ company applies IAS 29 Financial Reporting in the Hyperinflationary Economies, the concept which is important in those conditions is

It recognizes the portion of borrowing costs as an expense that compensates for inflation in accordance with the period with paragraph 21 of that Standard.

4. Measurement

A. It is dependent on the following

a. Funds Borrowed Specifically

Amount of Borrowing Cost that is eligible for Capitalization = (Actual interest) + (related expenses Incurred) less (Investment Income due to Excess idle Borrowings.)

b. Funds Borrowed Generally

B. Amount of Borrowing cost that is eligible for Capitalization = Amount of Qualifying Asset ×Weighted Average Capitalization Rate

Weighted Average Capitalization Rate = Total borrowing cost/Total average outstanding × 100

Amount of the borrowing cost capitalized cannot be more than the amount of borrowing cost incurred during that period.

5. Capitalization of the Borrowing Cost.

It includes the following:-

a. Commencement

b. Suspension

c. Cessation

Borrowing cost capitalization would be started when the entity first meets all the following conditions

  • The Expenditure on qualifying asset is being incurred
  • The cost of borrowing is incurred
  • Activities that are essential to prepare an asset for its intended use are in progress.

Borrowing cost capitalization must be suspended

If active development is disrupted for any prolonged period (excluding temporary delays or periods during which significant administrative or technical work is carried out)

Borrowing cost capitalization should be stopped

When substantially all activities that are necessary to prepare the qualifying asset for its use or sale are complete – It may be completed in parts, if each part can be used or sold separately.

6. Disclosures

An entity shall disclose:

(a) The amount of the borrowing costs that are capitalized during the period;

(b) The Weighted Capitalization rate is used to determine the number of Borrowing Costs which is eligible for capitalization.



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May 8, 2021

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