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Recognition
Borrowing costs should be capitalised while acquisition,
construction or production is actively underway
. Capitalisation
should commence from the later of the start of acquisition,
or development, of the asset and the date from which
funds were borrowed [IAS23.20] . Capitalisation should cease, however, once
the asset is substantially complete [IAS23.25] . Capitalisation should be suspended if the
development of the asset is suspended [IAS23.23]
.
Initial measurement
Use of specific funds
The cost of funds borrowed for the purpose of financing
the construction of a specific asset should be capitalised
during the active construction period . Investment income,
earned on the funds pending use, reduces the borrowing
costs available for capitalisation [IAS23.15]. Retention payments and grants received in connection
with the qualifying asset should reduce the amount of qualifying asset [IAS23.21]
Use of general funds
An entity may use funds from its general borrowings on the construction of a qualifying asset in addition to borrowing costs incurred on an asset specific debt. An appropriate portion of the cost of an entity's
general borrowings should also be capitalised where the
general borrowings are used to finance an asset's
development [IAS23.13] . The borrowing costs attributable to
the asset should be calculated by reference to the
entity's weighted average cost of borrowings . The
borrowings considered should exclude any borrowings
incurred specifically for the purpose of financing
another asset [IAS23.17] .
The costs capitalised cannot exceed the actual
borrowing costs incurred in the period [IAS23.17].
Use of notional funds
Only actual borrowing costs incurred may be capitalised.
Consequently, no borrowing costs may be capitalised
in respect of assets financed from retained earnings
or share capital [IAS23.15] .
Impairment
An asset under construction whose eventual total
cost is expected to exceed its recoverable amount
or net realisable value should be tested for impairment
in accordance with IAS 36 [IAS23.19] .
Future cash outflows, necessary for the completion
of the asset, should be included in the value in
use calculation [IAS36.42(R.05)].
Disclosure and presentation
The entity's accounting policy in respect of capitalisation
of borrowing costs should be disclosed [IAS23.29(a)].
The capitalisation rate used in respect of general
borrowings should be disclosed, and the amount of
borrowing costs capitalised during the period should
be given [IAS23.29(b),(c)].
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