Capitalise or expense

Learning objectives

• Determine whether the borrowing costs of a period are capitalised as part of the cost of a qualifying asset or recognised as an expense.L1, L2, L3

Normative references

• IAS 23 §8Borrowing costs directly attributable to a qualifying asset are capitalised as part of its cost; other borrowing costs are recognised as an expense in the period.

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

7 questions

• An entity incurs borrowing costs that are not directly attributable to a qualifying asset. How does it account for them?L1
• Tamaris incurred {borrowing_costs_incurred} of borrowing costs in the year. Part of it, {capitalised_amount}, is directly attributable to a plant under construction and is included in its cost. Calculate the amount of borrowing costs to be expensed.L2
• Cormier incurred {borrowing_costs_incurred} of borrowing costs in the year, still payable at the reporting date. Of this total, {attributable_part} is directly attributable to a workshop under construction (qualifying asset); the balance is attached to no asset. Record the entries for the year (one entry for the part capitalised, one for the part expensed).L3
• Landry draws a loan of {principal} on 1 January at {annual_rate} a year. Expenditure, borrowing costs and preparation activities are all in place only {months_before_start} later, on 1 May. The year ends on 31 December and no funds are temporarily invested. Calculate the interest eligible for capitalisation for the year and the interest recognised as an expense.L2
• Aurore is building a solar park. Active development is interrupted for 5 months following a dispute with a supplier, while the project's specific loan continues to run. Management hesitates over continuing to capitalise borrowing costs. In a few sentences, justify the treatment of borrowing costs during this interruption.L4
• Garance's plant is ready for its intended use: substantially all the preparation activities are complete. The cumulative cost in assets under construction comprises {construction_expenditure} of construction expenditure and {capitalised_borrowing_costs} of capitalised borrowing costs. Record the entry for entry into service.L3
• Marsac's plant, whose construction expenditure amounts to {construction_expenditure}, is financed in part by a specific loan of {principal} at {annual_rate} a year, drawn on 1 January. Substantially all the preparation activities are complete on 31 October. The year ends on 31 December: {months_until_completion} of capitalisation, then {months_after_completion} after completion. No funds are temporarily invested. Calculate the borrowing costs capitalised, those expensed, then the cost of the asset.L4