Principle of the standard

Learning objectives

• Explain the core principle: borrowing costs directly attributable to a qualifying asset form part of its cost; other borrowing costs are recognised as an expense.L1, L2

Normative references

• IAS 23 §1Core principle: borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset form part of the cost of that asset; other borrowing costs are recognised as an expense.

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

2 questions

• Borrowing costs that relate directly to the construction of a qualifying asset are added to the cost of that asset.L1
• Vauban borrowed 5,000,000 to finance the construction of a storage warehouse, which is a qualifying asset. It also uses an overdraft for its day-to-day cash needs, unrelated to the project. For the year, it incurred 300,000 of interest on the construction loan and 20,000 of interest on the overdraft. Which treatment is consistent with the standard's principle?L2