IAS 23 — Expenditures on a qualifying asset

Date recorded:

IAS 23 Borrowing Costs—Expenditures on a qualifying asset (Agenda Paper 3A)


The Committee received a submission asking whether, in determining the expenditures on which to apply the capitalisation rate, an entity includes expenditures incurred on the qualifying asset before obtaining the general borrowings in the case that the entity incurs expenditures on the qualifying asset both before and after it incurs borrowing costs on the general borrowings.

Outreach revealed that the prevalent accounting treatment is to include all expenditures—both pre- and post-borrowing.

In the staff's view, assessing whether to include expenditures on a qualifying asset before obtaining general borrowings for the purpose of determining borrowing cost eligible for capitalisation requires judgement and depends on the particular facts and circumstances. In making this assessment, the entity considers:

  • (a) The extent to which it uses general borrowings for the purpose of obtaining a qualifying asset, rather than whether it incurred the particular expenditures before or after obtaining the general borrowings
  • (b) Whether it could have avoided incurring the borrowing costs on the general borrowings if it had not incurred the expenditures on the qualifying asset

In the fact pattern described in the submission, the entity would not start capitalising borrowing costs until it obtains general borrowings and incurs borrowing costs.

The staff concluded that the requirements in IAS 23 provide an adequate basis for an entity to determine the borrowing costs eligible for capitalisation.

The staff do not recommend to add this matter to the Committee’s standard-setting agenda. Instead, the staff recommend to publish an Agenda Decision in relation to the application of the requirements in IAS 23.


The Committee agreed with the staff paper and agreed not to add this matter to the Committee’s standard-setting agenda.

The Committee discussed the application of IAS 23:18, which states that an entity would normally, but not always, use an average carrying amount of the asset as a reasonable approximation of the expenditures to which the capitalisation rate is applied in that period. The Committee concluded that expenditures may include all expenditures incurred before and after the borrowings were made.

Before taking the vote the Chair suggested clarifying in the Agenda Decision that in accordance with IAS 23:17, the entity would not capitalise the borrowing costs for the first six months for the case set out in the Appendix B of the staff paper because there were no borrowings during that time. She also suggested that the analysis of IAS 23:18 is not required. The Agenda Decision should simply state that an entity does not disregard expenditure incurred before the general borrowings were made in arriving at the capitalisation rate.


The Committee decided, by a majority vote, that an Interpretation is not required and that it would publish for public comment a tentative Agenda Decision to that effect.

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