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IAS 23 International Accounting Standard 23 Borrowing Costs This version includes amendments resulting from IFRSs issued up to 17 January 2008. IAS 23 Borrowing Costs was issued by the International Accounting Standards Committee in December 1993. It replaced IAS 23 Capitalisation of Borrowing Costs (issued March 1984). In April 2001 the International Accounting Standards Board resolved that all Standards and Interpretations issued under previous Constitutions continued to be applicable unless and until they were amended or withdrawn. IAS 23 was amended by IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors (issued December 2003). In March 2007 the IASB issued a revised IAS 23. The following Interpretations refer to IAS 23: 1C I R F• I Changes in Existing Decommissioning, Restoration and Similar Liabilities (issued May 2004 and subsequently amended) 2 1C I R F• I Service Concession Arrangements (issued November 2006 and subsequently amended). © IASCF 1369 IAS 23 C ONTENTS paragraphs INTERNATIONAL ACCOUNTING STANDARD 23 BORROWING COSTS CORE PRINCIPLE 1 SCOPE 2–4 DEFINITIONS 5–7 RECOGNITION 8–25 Borrowing costs eligible for capitalisation 10–15 Excess of the carrying amount of the qualifying asset over recoverable am16nt Commencement of capitalisation 17–19 Suspension of capitalisation 20–21 Cessation of capitalisation 22–25 DISCLOSURE 26 TRANSITIONAL PROVISIONS 27–28 EFFECTIVE DATE 29 WITHDRAWAL OF IAS 23 (REVISED 1993) 30 APPENDIX Amendments to other pronouncements APPROVAL OF IAS 23 BY THE BOARD BASIS FOR CONCLUSIONS DISSENTING OPINIONS APPENDIX Amendments to Basis for Conclusions on other pronouncements AMENDMENTS TO GUIDANCE ON OTHER PRONOUNCEMENTS TABLE OF CONCORDANCE 1370 ©IASCF IAS 23 International Accounting Standard 23 Borrowing Costs AI(ietti paragraphs 1–30. All of the paragraphs have equal authority but retain the IASC format of the Standard when it was adopted by the IASB. IAS 23 should be read in the context of its core principle and the Basis for Conclusions, the Preface to International Financial Reporting Standards and the Framework for the Preparation and Presentation of Financial Statements. IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors provides a basis for selecting and applying accounting policies in the absence of explicit guidance. This revised Standard was issued in March 2007. It supersedes IAS 23, revised in 1993. The text of the revised Standard, marked to show changes from the previous version, is available from the IASB’s Subscriber Website at www.iasb.org for a limited period. ©IASCF 1371 IAS 23 International Accounting Standard 23 Borrowing Costs Core principle 1 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. Scope 2 An entity shall apply this Standard in accounting for borrowing costs. 3 The Standard does not deal with the actu al or imputed cost of equity, including preferred capital not classified as a liability. 4 An entity is not required to apply th e Standard to borrowing costs directly attributable to the acquisition, construction or production of: (a) a qualifying asset measured at fair value, for example a biological asset; or (b) inventories that are manufactured, or otherwise produced, in large quantities on a repetitive basis. Definitions 5 This Standard uses the following terms with the meanings specified: Borrowing costs are interest and other costs that an entity incurs in connection with the borrowing of funds. A qualifying asset is an asset that necessarily takes a substantial period of time to get ready for its intended use or sale. 6 Borrowing costs may include: (a) interest on bank overdrafts and short-term and long-term borrowings; (b) amortisation of discounts or premiums relating to borrowings; (c) amortisation of ancillary costs incurred in connection with the arrangement of borrowings; (d) finance charges in respect of financ e leases recognised in accordance with IAS 17 Leases; and (e) exchange differences arising from foreign currency borrowings to the extent that they are regarded as an adjustment to interest costs. 7 Depending on the circumstances, any of the following may be qualifying assets: (a) inventories (b) manufacturing plants © 1372 IASCF IAS 23 (c) power generation facilities (d) intangible assets (e) investment properties. Financial assets, and inventories that are manufactured, or otherwise produced, over a short period of time , are not qualifying assets. Assets that are ready for their intended use or sale when acquired are not qualifying assets. Recognition 8 An entity shall capitalise borrowing cost s that are directly attributable to the acquisition, construction or production ofa qualifying asset as part of the cost of that asset. An entity shall recognise ot her borrowing costs as an expense in the period in which it incurs them. 9 Borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset are included in the co st of that asset. Such borrowing costs are capitalised as part of the cost of the asset when it is probable that they will result in future economic benefits to the entity and the costs can be measured reliably. When an entity applies IAS 29 Financial Reporting in Hyperinflationary Economies, it recognises as an expense the part of borrowing costs that compensates for inflation during the same period in accordance with paragraph 21 of that Standard. Borrowing costs eligible for capitalisation 10 The borrowing costs that are directly attributable to the acquisition, construction or production of a qualif ying asset are those borrowing costs that would have been avoided if the expenditure on the qualifying asset had not been made. When an entity borrows funds specifically for the purpose of obtaining a particular qualifying asset, the borrow ing costs that direct ly relate to that qualifying asset can be readily identified. 11 It may be difficult to identify a direct relationship between particular borrowings and a qualifying asset and to determine the borrowings that could otherwise have been avoided. Such a difficulty occurs, for example, when the financing activity of an entity is co-ordinated centrally.Difficulties also arise when a group uses a range of debt instruments to borrow funds at varying rates of interest, and lends those funds on various bases to other entities in the group. Other complications arise through the use of loans denominated in or linked to foreign currencies, when the group operates in highly inflationary economies, and from fluctuations inexchangerates.Asaresult,thede termination of the amount of borrowing costs that are direct ly attributable to the acquis ition of a qualifying asset is difficult and the exercise of judgement is required. 12 To the extent that an entity borrows funds specifically for the purpose of obtaining a qualifying asset, the entity shall determine the amount of borrowing costs eligible for capitalisation as the actual borrowing costs incurred on that borrowing during the period less any investment income on the temporary investment of those borrowings. © IASCF 1373 IAS 23 13 The financing arrangements for a qualifying asset may result in an entity obtaining borrowed funds and incurring associated borrowing costs before some or all of the funds are used for expendit ures on the qualifying asset. In such circumstances, the funds are often temporarily invested pending their expenditure on the qualifying asset. In determining the am ount of borrowing costs eligible for capitalisation duringa period, any investment income earned on such funds is deducted from the borrowing costs incurred. 14 To the extent that an entity borrows funds generally and uses them for the purpose of obtaining a qualifying asset, the entity shall determine the amount of borrowing costs eligible for capitalisation by applying a capitalisation rate to the expenditures on that asset. The capitalisation rate shall be the weighted average of the borrowing costs applicable to the borrowings of the entity that are outstanding during the period, other than borrowings made specifically for the purpose of obtaining a qualifying asset. The amount of borrowing costs that an entity capitalises during a period shall not exceed the amount of borrowing costs it incurred during that period. 15 In some circumstances, it is appropriate to include all borrowings of the parent and its subsidiaries when computing a weighted average of the borrowing costs; in other circumstances, it is appropriat e for each subsidiary to use a weighted average of the borrowing costs applicable to its own borrowings. Excess of the carrying amount of the qualifying asset over recoverable amount 16 When the carrying amount or the expected ultimate cost of the qualifying asset exceeds its recoverable amount or net re alisable value, the carrying amount is written down or written off in accord ance with the requirements of other Standards. In certain circumstances, the amount of the write-down or write-off is written back in accordance with those other Standards. Commencement of capitalisation 17 Anentityshallbegincapitalisingborrowingcostsaspartofthecostofa qualifying asset on the commencement date. The commencement date for capitalisation is the date when the entity first meets all of the following conditions: (a) it incurs expenditures for the asset; (b) it incurs borrowing costs; and (c) it undertakes activities that are necessary to prepare the asset for its intended use or sale. 18 Expenditures on a qualifying asset in clude only those expenditures that have resulted in payments of cash, transfer s of other assets or the assumption of interest-bearing liabilities. Expenditures are reduced by any progress payments received and grants received in connection with the asset (see IAS 20Accounting for 1374 © IASCF IAS 23 Government Grants and Disclosure of Government Assistance). The average carrying amount of the asset during a period, including borrowing costs previously capitalised, is normally a reasonable approximation of the expenditures to which the capitalisation rate is applied in that period. 19 The activities necessary to prepare the asset for its intended use or sale encompass more than the physical co nstruction of the asset. They include technical and administrative work prior to the comme ncement of physical construction, such as the activities associated with obtaining permits prior to the commencement of the physical construction. However, such activities exclude the holding of an asset when no production or development that changes the as set’s condition is taking place. For example, borrowing costs incurred while land is under development are capitalised during the peri od in which activities related to the development are being undertaken. Howe ver, borrowing costs incurred while land acquired for building purposes is held without any associated development activity do not qualify for capitalisation. Suspension of capitalisation 20 An entity shall suspend capitalisation of borrowing costs during extended periods in which it suspends active development of a qualifying asset. 21 An entity may incur borr owing costs during an extended period in which it suspends the activities necessary to prepare an asset for its intended use or sale. Such costs are costs of holding partially completed assets and do not qualify for capitalisation. However, an entity do es not normally suspend capitalising borrowing costs during a period when it carries out substantial technical and administrativework. Anentityalsodoesnotsuspendcapitalisingborrowing costs when a temporary delayis a necessary part of theprocess of getting an asset ready for its intended use or sale. For example, capitalisation continues during the extended period that high water levels delay construction of a bridge, if such high water levels are common during the construction period in the geographical region involved. Cessation of capitalisation 22 An entity shall cease capitalising bo rrowing costs when substantially all the activities necessary to prepare the qualifying asset for its intended use or sale are complete. 23 An asset is normally ready for its in tended use or sale when the physical construction of the asset is complete even though routine administrative work might still continue. If minor modifications, such as the decoration of a property to the purchaser’s or user’s specificat ion, are all that are outstanding, this indicates that substantially all the activities are complete. 24 When an entity completes the construction of a qualifying asset in parts and each partiscapableofbeing usedwhileconstructioncontinuesonotherparts,the entity shall cease capitalising borrowing costs when it completes substantially all the activities necessary to prepare that part for its intended use or sale. ©IASCF 1375 IAS 23 25 A business park comprising several buildings, each of which can be used individually, is an example of a qualifying asset for which each part is capable of being usable while construc tion continues on other parts. An example of a qualifying asset that needs to be comple tebeforeanypartcanbeusedisan industrial plant involving several processes which are carried out in sequence at different parts of the plant within the same site, such as a steel mill. Disclosure 26 An entity shall disclose: (a) the amount of borrowing costs capitalised during the period; and (b) the capitalisation rate used to determine the amount of borrowing costs eligible for capitalisation. Transitional provisions 27 When application of this Standard cons titutes a change in accounting policy, an entity shall apply the Standard to borrowingcosts relating to qualifying assets for which the commencement date for capitalisation is on or after the effective date. 28 However, an entity may designate any datebefore the effective date and apply the Standard to borrowing costs relating to all qualifying assets for which the commencement date for capitalisation is on or after that date. Effective date 29 An entity shall apply the Standard fo r annual periods beginning on or after 1 January 2009. Earlier application is permitted. If an entity applies the Standard from a date before 1 January 2009, it shall disclose that fact. Withdrawal of IAS 23 (revised 1993) 30 This Standard supersedes IAS 23 Borrowing Costs revised in 1993. 1376 ©IASCF IAS 23 Appendix Amendments to other pronouncements The amendments in this appendix shall be applied for annual periods beginning on or after 1 January 2009. If an entity applies this Strd for an earlier period, the amendments in this appendix shall be applied for that earlier period. In the amended paragraphs, new text is underlined and deleted text is struck through. * * * * * The amendments contained in this appendix when this IFRS was issued in 2007 have been incorporated into the relevant IFRSs published in this volume. © IASCF 1377 IAS 23 Approval of IAS 23 by the Board International Accounting Standard 23 Borrowing Costs was approved for issue by eleven of the fourteen members of the International Accounting Standards Board. Messrs Cope, Danjou and Garnett dissented. Their dissenting opinions are set out after the Basis for Conclusions. Sir David Tweedie Chairman Thomas E Jones Vice-Chairman Mary E Barth Hans-Georg Bruns Anthony T Cope Philippe Danjou Jan Engström Robert P Garnett Gilbert Gélard James J Leisenring Warren J McGregor Patricia L O’Malley John T Smith Tatsumi Yamada 1378 ©IASCF IAS 23 BC Basis for Conclusions on IAS 23 Borrowing Costs This Basis for Conclusions accompanies, but is not part of, IAS 23. Introduction BC1 This Basis for Conclusions summarises the International Accounting Standards Board’s considerations in reaching its conclusions on revising IAS 23Borrowing Costs in 2007. Individual Board members gave greater weight to some factors than to others. BC2 The revisions to IAS 23 result from the Board’s Short-term Convergence project. The project is being conducted jointly with the United States standard-setter, the Financial Accounting Standards Board (FASB). The objective of the project is to reduce differences between IFRSs and US generally accepted accounting principles (GAAP) that are capable of resolution in a relatively short time and can be addressed outside major projects. Th e revisions to IAS 23 are principally concerned with the elimination of one of the two treatments that exist for borrowing costs directly attributable to the acquisition, construction or production of a qualifying asset. The application of only one method will enhance comparability. For the reasons set out below, the Board decided to eliminate the option of immediate recognition of such borrowing costs as an expense. It believes this will result in an impr ovement in financial reporting as well as achieving convergence in principle with US GAAP. BC3 The Board considered whether to seek convergence on the detailed requirements for the capitalisation of borrowing costs directly attributable to the acquisition, construction or production of a qualif ying asset. However, the Board noted statements by the US Securities an d Exchange Commission (SEC) and the European Commission that the IASB an d FASB should focus their short-term convergence effort on eliminating major differences of principle between IFRSs and US GAAP. For their purposes, convergence on the detailed aspects of accounting treatments is not necessary. The Board further noted that both IAS 23 and SFAS 34 Capitalization of Interest Cwere developed some years ago. Consequently, neither set of specific provisions may be regarded as being of a clearly higher quality than the other. Therefore, the Board concluded that it should not spend time and resources considering aspects of IAS 23 beyond the choice between capitalisation and immediate recognition as an expense. This Basis for Conclusions does not, therefore, discuss aspects of IAS 23 that the Board did not reconsider. Paragraphs BC19–BC26 analyse the differences between IAS 23 and SFAS 34. Amendments to the scope Assets measured at fair value BC4 The exposure draft of proposed amen dments to IAS 23 proposed excluding from the scope of IAS 23 assets measured at fair value. Some respondents objected to the proposal, interpreting the scope exclusion as limiting capitalisation of © IASCF 1379 IAS 23 borrowing costs to qualifying assets measured at cost . The Board confirmed its decision not to require capitalisation of borrowing costs relating to assets that are measured at fair value. The measurement of such assets will not be affected by the amount of borrowing costs incurred during their construction or production period. Therefore, requirements on ho w to account for borrowing costs are unnecessary, as paragraphs B61 and B62 of the Basis for Conclusions on IAS 41 Agriculture explain. But the Board noted that the exclusion of assets measured at fairvaluefromtherequirementsofIAS23doesnotprohibitanentityfrom presenting items in profit or loss as if borrowing costs had been capitalised on such assets before measuring them at fair value. Inventories that are manufactured, or otherwise produced, in large quantities on a repetitive basis BC5 The US standard, SFAS 34, requires an entity to recognise as an expense interest costs for inventories that are routinely manufactur ed or otherwise produced in large quantities on a repetitive ba sis because, in the FASB’s view, the informational benefit from capitalising interest costs does not justify the cost. The exposure draft did not make an exception for borrowing costs relating to such inventories. The exposure draft, theref ore, proposed to require an entity to capitalise borrowing costs relating to inventories that are manufactured in large quantities on a repetitive basis and take a substantial period of time to get ready for sale. Respondents argued that capitalising those borrowing costs would create a significant administrative burden, would not be informative to users and would create a reconciling item between IFRSs and US GAAP. BC6 The Board decided to exclude from th e scope of IAS 23 in ventories that are manufactured, or otherwise produced, in large quantiti es on a repetitive basis, even if they take a substantial period oftime to get ready for sale. The Board acknowledges the difficulty in both allocating borrowing costs to inventories that are manufactured in large quantities on a repetitive basis and monitoring those borrowing costs until the inventory is so ld. It concluded that it should not require an entity to capitalise borrowing costs on such inventories because the costs of capitalisation are likely to exceed the potential benefits. Elimination of the option of immediate recognition as an expense of borrowing costs directly attributable to the acquisition, construction or production of a qualifying asset BC7 The previous version of IAS 23 perm itted two treatments for accounting for borrowing costs that are directly attrib utable to the acquisition, construction or production of a qualifying asset. Th ey could be capitali sed or, alternatively, recognised immediately as an expense. SFAS 34 requires the capitalisation of such borrowing costs. BC8 The Board proposed in the exposure dr aft to eliminate the option of immediate recognition as an expense. Many respondents disagreed with the Board’s proposal in the exposure draft, arguing that: (a) borrowing costs should not be th e subject of a short-term convergence project. 1380 © IASCF IAS 23 BC (b) the Board had not explored in sufficient detail the merits of both accounting options. (c) the proposal did not result in bene fits for users of financial statements because: (i) it addressed only one of the differences between IAS 23 and SFAS 34. (ii) comparability would not be enhanced because the capital structure of an entity could affect the cost of an asset. (iii) credit analysts reverse capitalised borrowing costs when calculating coverage ratios. (d) the costs of implementing the capitalisation model in IAS 23 would be burdensome. (e) the proposal was not consistent with the Board’s approach on other projects (in particular, the second phase of the Business Combinations project). BC9 The Board concluded that borrowing cost s that are directly attributable to the acquisition, construction or production of a qualifying asset are part of the cost of that asset. During the period wh en an asset is under development, the expenditures for the resources used must be financed. Financing has a cost. The cost of the asset should include all costs necessarily incurred to get the asset ready for its intended use or sale, including the cost incurred in financing the expenditures as a part of the asset’s ac quisition cost. The Board reasoned that recognising immediately as an expense borrowing costs relating to qualifying assets does not give a faithful representation of the cost of the asset. BC10 The Board confirmed that the objectiv e of the project is not to achieve full convergence on all aspects of accounting for borrowing costs. Rather, it is to reduce differences between IFRSs and US GAAP that are capable of resolution in a relatively short time. The removal of a choice of accoun ting treatment and convergence in principle with US GAAP will enhance comparability. The Board acknowledges that capitalising borrowin g costs does not achieve comparability between assets that are financed with borrowings and those financed with equity. However, it achieves comparability among all non-equity financed assets, which is an improvement. BC11 A requirement to recognise immediately as an expense borrowing costs relating to qualifying assets would not enhanc e comparability. Rather, comparability between assets that are internally developed an d those acquired from third parties would be impaired. The purchase price of a completed asset purchased from a third party would include financing costs incurred by the third party during the development phase. BC12 Respondents to the exposure draft argu ed that requiring th e capitalisation of borrowing costs is not consistent with the Board’s proposal in the second phase of the Business Combinations project to requ ire an entity to treat as an expense acquisition costs relating to a business combination. The Board disagrees with those respondents. Acquisition costs as defined in the context of a business combination are different from borrowing costs incurred in constructing or producing a qualifying asset. Borrowing costs are part of the cost necessarily © IASCF 1381 IAS 23 incurred to get the asset ready for its intended use or sale. Acquisition costs relating to a business combination are costs incurred for services performed to help with the acquisition, such as due diligence and professional fees. They are not costs of assets acquired in a business combination. BC13 The Board concluded that the addi tional benefits in terms of higher comparability, improvements in financ ial reporting and achieving convergence in principle with US GAAP exceed any additional costs of implementation. Achieving convergence in principle with US GAAP on this topic is a milestone in the Memorandum of Understanding published by the FASB and IASB in February 2006, which is a step towards removal of the requirement imposed on foreign registrants with the SEC to reconcile their financial statements to US GAAP. BC14 The Board observes that there is an un avoidable cost of complying with any new financial reporting standard. Accordingly,the Board carefully considers the costs and benefits of any new pronouncement. In this case, the Board has not been told that preparers who electe d to capitalise borrowing costs under the previous version of IAS 23 found do ing so unnecessarily burdensome. In the Board’s judgement, any additional costs of capitalising an item of cost of an asset are offset by the advantage of having all entitiesaccount for that item in the same way. Effective date and transition BC15 Development of a qualifying asset may take a long time. Additionally, some assets currently in use may have undergone and completed their production or construction process many years ago. If the entity has been following the accounting policy of immediately recognising borrowing costs as an expense, the costs of gathering the information requiredto capitalise them retrospectively and to adjust the carrying amount of the asset may exceed the potential benefits. Hence, the Board decided to require prospective application, which was supported by respondents to the exposure draft. BC16 The Board noted that the revisions wo uld result in information that is more comparable between entities. On that ba sis, if an entity wished to apply the revised Standard from any date before the effective date, users of the entity’s financial statements would receive more useful and comparable information than previously. BC17 Therefore, an entity is permitted to apply the revised Standard from any designateddatebeforetheeffectivedate. However,ifanentityappliesthe Standard from such an earlier date, it should apply the Standard to all qualifying assets for which the commencement date for capitalisation is on or after that designated date. BC18 The Board recognises that the Standard may require an entity that reconciles its IFRS financial statements to US GAAP to maintain two sets of capitalisation information—one set that complies with the requirements of IAS 23 and one that complies with the requirements of SFAS 34. The Board wishes to avoid imposing on such entities the need to maintain two sets of capitalisation information. Therefore, before the effective date, the Board will consider what actions it might take to avoid this outcome. 1382 © IASCF IAS 23 BC Differences between IAS 23 and SFAS 34 BC19 The following paragraphs summarise the main differences between IAS 23 and SFAS 34. Definition of borrowing costs BC20 IAS 23 uses the term ‘borrowing costs’ whereas SFAS 34 uses the term ‘interest costs’. ‘Borrowing costs’ reflects the broader definition in IAS 23, which encompasses interest and other costs, such as: (a) exchange differences arising from foreign currency borrowings to the extent that they are regarded as an adjustment to interest costs; and (b) amortisation of ancillary costs incurred in connection with the arrangement of borrowings. BC21 EITF Issue No. 99-9 concludes that derivative gains and losses (arising from the effective portion of a derivative instrumentthat qualifies as a fair value hedge) are part of the capitalised interest cost. IAS23 does not address such derivative gains and losses. Definition of a qualifying asset BC22 The main differences are as follows: (a) IAS 23 defines a qualifying asset as one that takes a substantial period of time to get ready for its intended use or sale. The SFAS 34 definition does not include the term substantial. (b) IAS 23 excludes from its scope qualif ying assets that ar e measured at fair value. SFAS 34 does not address assets measured at fair value. (c) SFAS 34 includes as qualifying assets investments in investees accounted for using the equity method, in some circumstances. * Such investments are not qualifying assets according to IAS 23. (d) SFAS 34 does not permit the capitalisation of interest costs on assets acquired with gifts or grants that are restricted by the donor or grantor in some situations. IAS 23 does not address such assets. Measurement BC23 When an entity borrows funds specifically for the purpose of obtaining a qualifying asset: (a) IAS 23 requires an entity to capita lise the actual borrowing costs incurred on that borrowing. SFAS 34 states th at an entity may use the rate of that borrowing. * While the investee has activities in progss necessary to commenc e its planned principal operations provided that the investee’s activities include the use of funds to acquire qualifying assets for its operations. ©IASCF 1383 IAS 23 (b) IAS23requiresanentitytodeductanyincomeearnedonthetemporary investment of actual borrowings from the amount of borrowing costs to be capitalised. SFAS34doesnotgene rally permit this deduction, unless particular tax-exempt borrowings are involved. BC24 SFAS 34 requires an entity to use judgement in determining the capitalisation rate to apply to the expenditures on th e asset—an entity se lects the borrowings that it considers appropriate to meet th e objective of capitalising the interest costs incurred that otherwise could have been avoided. When an entity borrows funds generally and uses them to obtain a qualifying asset, IAS 23 permits some flexibility in determining the capitalisation rate, but requires an entity to use all outstanding borrowings other than those made specifically to obtain a qualifying asset. Disclosure requirements BC25 IAS 23 requires disclosure of the capitalisation rate used to determine the amount of borrowing costs eligible for capitalisation. SFAS 34 does not require this disclosure. BC26 SFAS 34 requires disclosure of the to tal amount of interest cost incurred during the period, including the amount capitalised and the amount recognised as an expense. IAS 23 requires disclosure only of the amount of borrowing costs capitalised during the period. IAS 1 Presentation of Financial Statements requires the disclosure of finance costs for the period. Consequential amendments to IAS 11 Construction Contracts BC27 IAS 11 paragraph 18 states that ‘costs that may be attributable to contract activity in general and can be allocated to specific contracts also include borrowing costs when the contractor adopts the allowed alternative treatment in IAS 23 Borrowing Costs.’ The Board decided to delete the re ference to IAS 23 in this paragraph because it is unnecessary. Attributing borrowing costs to contracts is not a matter of capitalisation. Rather, it is a ma tter of identifying the contract costs. The inclusion of borrowing costs in cont ract costs affects the presentation of borrowing costs in profit or loss. It do es not affect the recognition of borrowing costs as specified in IAS 23. 1384 ©IASCF IAS 23 BC Dissenting opinions on IAS 23 Dissent of Anthony T Cope, Philippe Danjou and Robert P Garnett DO1 The Board’s decision to require the capi talisation of borrowing costs relating to qualifying assets will cause a signific ant change in acco unting for the many preparers that currently apply the benchmark treatment of recognising borrowing costs as an expense. Messrs Cope, Danjou and Garnett believe that such a change will require the establishment of cumbersome measurement processes and monitoring of capitalised costs over a long period. This is likely to involve considerable accounting work and incremental auditing costs. DO2 Users of financial statements respondi ng to the exposure draft did not support the change because they saw no informational benefit in a model that capitalises costs, other than the capita lisation of the actual economic cost of capital of the investment. In addition, Messrs Cope, Danjou and Garnett believe that a standard requiring the capitalisation of borrowing costs should discuss more extensively which assets qualify for the purpose of capitalising which borrowing costs. DO3 As a consequence, Messrs Cope, Danjou and Garnett dissent because, in their view, the costs of this particular change will far outweigh the benefits to users. DO4 In addition, this requirement to capitalise borrowing costs will achieve only limited convergence with US GAAP—diffe rences will remain that could lead to materially different capitalised amounts. Furthermore, entities that are required to reconcile net income and shareholders ’ equity to US GAAP already have the option to capitalise borrowing costs an d, thus, may recognise amounts that are more comparable to, albeit still potentially materially different from, those recognised in accordance with US GAAP. DO5 The Memorandum of Understanding publ ished by the FASB and the IASB states that trying to eliminate di fferences between standards that are both in need of significant improvement is not the best use of resources. Messrs Cope, Danjou and Garnett support the convergence work programme, but only if it results in higher quality standards and improved financial reporting. They are of the opinion that IAS 23 and SFAS 34 are bothin need of significant improvement and should not have been addressed as part of short-term convergence. © IASCF 1385 IAS 23 Appendix Amendments to Basis for Conclusions on other pronouncements This appendix contains amendments to thefor Conclusions on other pronouncements that are necessary in order to ensure consistency with the revised IAS 23. * * * * * The amendments contained in this appendix when IAS23 was issued in 2007 have been incorporated into the text of the Basis for Conclusions on IFRS 1 and IFRICs 1 and 12. 1386 © IASCF IAS 23 Amendments to guidance on other pronouncements The following amendments to guidance on other pronouncements are necessary in order to ensure consistency with the revised IAS 23. In the amendedparagraphs, new text is underlined and deleted text is struck through. * * * * * The amendments contained in this appendix when IA S 23 was issued in 2007 have been applied in the guidance on implementing IFRS 1 and IAS 8 and the Illustrative Examples accompanying IFRIC 12. © IASCF 1387 IAS 23 Table of Concordance This table shows how the contents of the su perseded version of IAS 23 and the revised version of IAS 23 correspond. Paragraphe treated as corresponding if they broadly address the same matter even though the guidance may differ. Superseded Revised Superseded Revised IAS 23 paragraph IAS 23 paragraph IAS 23 paragraph IAS 23 paragraph Objective 1 18 15 1 2 19 16 7 0 e 1 2 n o 2 N 8 13 1 2 9 24 1 2 5 6 23 20 6 7 24 21 2 5 e 2 2 n o 7 N 3 6 e 2 2 n o 8 N 4 7 e 2 2 n o 9 N 10 8 28 25 11 None 29 26 12 9 30 None 13 10 31 None 14 11 None 4 15 12 None 27, 28 16 13 None 29 17 14 None 30 1388 © IASCF
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