Capitalisation of borrowing costs (IAS 23)

Learning objectives

• Analyse the effect of a grant related to assets on the basis for capitalising borrowing costs (IAS 23).L3
• Justify and defend in a professional file (L4) the treatment adopted for the "Interaction with IAS 23: grants reduce qualifying expenditure" concept, distinguishing the IFRS requirement, the case data, the teaching assumption and judgement.L4

Normative references

• IAS 20 §24Grants related to assets: presented in the statement of financial position either as deferred income or by deducting the grant in arriving at the carrying amount of the asset.
• IAS 20 §26Deferred income method: the grant is recognised in profit or loss on a systematic basis over the useful life of the asset.
• IAS 20 §27Deduction method: the grant reduces the carrying amount of the asset and is recognised in profit or loss over the life of the asset by way of a reduced depreciation expense.

Original summaries of the paragraphs (reference register), never a quotation of the standard.

3 questions

• Chauvin is building a plant and has incurred {expenditure} of expenditure to date. It has received {grant_received} of grant for this asset, which it deducts from the asset's carrying amount. Under the IAS 23 rule (its own course), the capitalisation base for borrowing costs is the expenditure incurred net of the grant received for the asset. Calculate the expenditure used as the base.L3
• Four statements compare the two presentations of a grant related to an asset under construction. Which one is wrong?L3
• Dupuy is building a plant for EUR 5,000,000 with a grant of EUR 1,000,000, which it presents as deferred income. The finance director states that, since the grant sits in liabilities, the asset stays at gross cost and the borrowing cost capitalisation base is therefore the gross expenditure. Case convention: the capitalisation base is the expenditure incurred net of the grant received for the asset, whatever the presentation adopted. In three to five sentences, discuss this statement.L4