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IAS 23 — Borrowing costs

Date recorded:

IAS 23 Borrowing Costs — Expenditure on a qualifying asset (Agenda Paper 9A)

Background

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.

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.

The Committee discussed the matter at the June 2018 meeting and agreed with the staff's conclusion that the requirements in IAS 23 provide an adequate basis for an entity to determine the borrowing costs eligible for capitalisation. 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.

Staff analysis

The staff agree with the Committee's conclusion in June 2018.

Staff recommendation

The staff recommend confirming the tentative agenda decision as published in IFRIC Update in June 2018 with some editorial amendments.

Discussion and decision

All Committee members agreed with the staff recommendation and decided to finalise the Agenda Decision.

IAS 23 Borrowing Costs — Borrowing costs on land (Agenda Paper 9B)

Background

The Committee received a submission asking whether an entity ceases to capitalise borrowing costs in respect of expenditures incurred in developing land (land development expenditures) once it begins constructing the building on the land (View 1) or continues to capitalise borrowing costs in respect of the land development expenditures while it constructs the building (View 2).

The staff concluded that applying IAS 23:24, an entity considers whether the land is capable of being used for the intended purpose while construction continues on the building. If the land is not capable of being used for its intended purpose while construction continues on the building, the entity considers the land and building together in assessing when to cease capitalising borrowing costs on the land development expenditures. In this situation, the staff think the land would not be ready for its intended use or sale until substantially all the activities necessary to prepare both the land and the building for that intended use or sale are complete.

The Committee discussed the matter at the June 2018 meeting and agreed with the staff's conclusion that the requirements in IAS 23 provide an adequate basis for an entity to determine the borrowing costs eligible for capitalisation. 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.

Staff analysis

The staff agree with the Committee's conclusion in June 2018.

Staff recommendation

The staff recommend confirming the tentative agenda decision as published in IFRIC Update in June 2018 with no changes.

Discussion and decision

All Committee members agreed with the staff recommendation and decided to finalise the Agenda Decision.

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