The cap at costs incurred

Learning objectives

• Apply the cap: the amount capitalised does not exceed the borrowing costs incurred during the period.L2, L3
• Justify and defend in a professional file (L4) the treatment adopted for the "Cap: capitalised amount not above borrowing costs incurred" concept, distinguishing the IFRS requirement, the case data, the teaching assumption and judgement.L4

Normative references

• IAS 23 §14General borrowings: capitalisation rate = weighted average of the borrowing costs of the period, applied to the expenditures on the asset, provided that the amount capitalised during the period does not exceed the borrowing costs incurred during that period (last sentence of para. 14); since the 2015-2017 annual improvements, a specific borrowing that remains outstanding after the asset is ready becomes part of general borrowings.

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

3 questions

• For a qualifying asset financed by its general borrowings, Altair calculates costs eligible for capitalisation of {calculated_costs}, whereas its borrowing costs incurred in the year amount to {borrowing_costs_incurred}. What amount can be capitalised in the asset?L2
• Four colleagues comment on the cap applicable to capitalised borrowing costs. Which of the following statements is incorrect?L3
• Brémont is building a warehouse financed by its general borrowings: 3,000,000 outstanding all year, with borrowing costs incurred of 195,000 (a capitalisation rate of 6.5%). The weighted average expenditure on the warehouse is 3,400,000 (case data, part being financed from own cash). What amount of borrowing costs can be capitalised for the year?L3