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| International Accounting standard(IAS) |
What is the International Accounting Standards (IAS-23)? Describes in details:
IAS 23 (International Accounting Standard 23) is a standard issued by the International Accounting Standards Board (IASB) that provides guidelines on borrowing costs. The standard defines how borrowing costs should be recognized and accounted for in financial statements.
Key aspects of IAS 23 include:
1.Capitalization of Borrowing Costs:
IAS 23 requires that borrowing costs directly attributable to the acquisition, construction, or production of a qualifying asset must be capitalized as part of the cost of that asset. A qualifying asset is one that takes a substantial period of time to get ready for use or sale, such as property, plant, equipment, or intangible assets.
2.Borrowing Costs:
Borrowing costs include interest on borrowings, amortization of discounts or premiums related to borrowings, and other costs directly attributable to obtaining funds for the asset. These costs should be capitalized during the period when the asset is being prepared for its intended use.
3.Commencement of Capitalization:
Borrowing costs should be capitalized from the time when expenditures for the asset are being incurred, borrowing costs are being incurred, and activities necessary to prepare the asset for its intended use or sale are underway.
4.Suspension of Capitalization:
Capitalization of borrowing costs should be suspended if the asset’s construction or production is interrupted for extended periods. During such periods, borrowing costs should be expense.
5.End of Capitalization:
Capitalization should cease once the asset is ready for its intended use or sale. At this point, any further borrowing costs should be expense.
6.Optional Treatment for Other Borrowing Costs:
IAS 23 permits an option for companies to expense all borrowing costs in the period in which they are incurred, rather than capitalizing them, as long as the borrowing costs are not directly related to the acquisition or construction of a qualifying asset.
7.Disclosure Requirements:
IAS 23 requires that companies disclose the amount of borrowing costs capitalized during the period, and the policy for recognizing borrowing costs in financial statements.
In short, IAS 23 ensures that borrowing costs incurred during the construction or acquisition of qualifying assets are properly capitalized, helping to provide a more accurate reflection of the cost of producing or acquiring long-term assets.