Interest and lease liabilities

Learning objectives

• Calculate a period's interest expense using the effective interest method and include, where relevant, interest on lease liabilities.L2, L3

Normative references

• IAS 23 §6Borrowing costs: interest expense calculated using the effective interest method (IFRS 9), interest on lease liabilities (IFRS 16), and exchange differences to the extent that they are regarded as an adjustment to interest costs.

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

4 questions

• Varenne is financing a construction project. It notes four items for its year: (1) interest on a bank loan, calculated at the effective interest rate; (2) interest on the lease liability of a lease contract; (3) the salaries of the project team; (4) the architect's fees. Which items are borrowing costs?L2
• Delmas drew a loan of {principal} at an effective interest rate of {effective_rate} a year. The loan was outstanding for {months_outstanding} of the year. Calculate the interest for the year on this loan, at the effective interest rate.L2
• Trianon is building a logistics centre. For the year, it notes: 190,000 of interest on a bond, calculated at the effective interest rate; 35,000 of interest on the lease liability of a leased warehouse; and an exchange difference of 22,000 on a dollar loan, of which 14,000 is regarded as an adjustment to interest (case data). What is the total of the borrowing costs for the year?L3
• Hélios draws a specific borrowing of 6,000,000 on 1 January, dedicated to the construction of a warehouse. Its nominal rate is 4.5%, but its effective interest rate, which includes the issue costs, is 6% (case data). Expenditure, borrowing costs and preparation activities are all in place from 1 March; the year ends on 31 December and no funds are temporarily invested. What amount of borrowing costs is eligible for capitalisation for the year?L4