Cracking IAS 23 - Borrowing Costs - The Ultimate Studygram Guide(Bilingual Edition)

Sep 23, 2026

Comprehensive exam-focused study notes on IAS 23 Borrowing Costs, explaining what qualifies as a borrowing cost and which assets qualify for capitalisation. Covers specific and general borrowings, including the logic for capitalising interest using formulas based on outstanding loan amounts, rates, and months active while excluding suspension periods. Includes worked applications with numerical examples, calculation of the capitalisation rate, expenditure base adjustments for progress payments and grants, mandatory disclosure requirements, and practice question timeline mapping to split capitalised versus expensed interest.

LanguageEnglish

CategoryExam

FormatPDF

Pages8

Reading Time20 min

AccessFree to download

LO1: What is a Borrowing Cost?

LO2: The Qualifying Asset

LO4: Specific Borrowings

The Specific Borrowings Recipe

LO4: Specific Borrowings Application

LO5: General Borrowings Application

Calculating the Capitalisation Rate (Ex. 6)

LO7: Calculating the Expenditure Base

LO8: Mandatory Disclosures

LO9: Practice Question 2 (Timeline Mapping)

●·Loan processing &commitment fees ●·Bank charges,commissions,documentation/legal charges ●·Exchange differences on foreigncurrency borrowings # Cracking IAS 23:Borrowing Costs The Ultimate Studygram Guide(Bilingual Edition) ## LO1:What is a Borrowing Cost? THE VIP LIST(INCLUDED) BOUNCED(EXCLUDED) ●·Interest expense(effective interestmethod) ●·Actual or imputed cost of equity ●·Dividends paid to equity-holders ●·Issue of share capital/right shares 2aroori Baat! Issue of share capital pe jo dividend pay hota hai,that is NOT a borrowing cost. Sirf loans,debentures,aur overdrafts ko dekhein! Exam Tip! Yeh standard mechanics aur logic dono check karta hai.Let's master it step-by-step! ## LO2:The Qualifying Asset A Qualifying Asset necessarily takes a substantial period of timeto get ready for intended use or sale. ## LO4:Specific Borrowings Exam Tip Specific loan ka paisa agal ## The Specific Borrowings Recipe farigh pada hai,toh usk invest kar ke jo income ayegi,woh interest expense joh capitalise huc Interest incurred on specific borrowing(Loan outstanding×rate×months outstanding*/12) usay kam karegi(minus hogi)! Temporary investment income(Ilnvestment made ×rate×months outstanding*/12) Borrowing Cost to be Capitalized *Months outstanding shall exclude suspension periods and stop when the project ceases. ## LO4:Specific Borrowings Application Data:Okara Engineering(Ex.5) Solution:The Math ● Bond issued:Rs.25,000,000 Actual borrowing costs: 1,250,000 ·Construction costs incurred:Rs. Less:Temp investment income:(780,000) 9,000,000 ·Cost of servicing bond (Interest):Rs.1,250,000Borrowing cost capitalised=470,000 ·Temporary reinvestment income:Rs. 780,000Total CWIP=Construction costs (9,000,000)+Capitalised Interest(470,000)Dekha?25m ka loan tha,par construction cost sir9m lagi.Baqi paisa investTotal CWIP=9,470,000kiya toh income aayi jisneinterest ka bojh kam kardiya. Step-by-step:Pehle ## LO5:General Borrowings Application outstanding time ke hisaab se loan kc weight dein,phir interest nikalein,aur end pe divide kar ## Calculating the Capitalisation Rate(Ex.6) dein.Easy | Bank | Loan | Outstanding | Weighted Loan | Rate | Interest | | --- | --- | --- | --- | --- | --- | | HBL | 10m | 6/12 | 5.00 | 13% | 0.65 | | NBP | 15m | 3/12 | 3.75 | 12% | 0.45 | | PICIC | 20m | 2/12 | 3.33 | 15% | 0.50 | | TOTALS | - | - | Weighted Loan =12.08 | - | Total Interest =1.60 | Rate =Weithte Lros 1208=13.25% ## LO7:Calculating the Expenditure Base Expenditures are reduced by progress payments and grants received. ## Gross ExpenditureProgressPaymentsGrants Net Expenditure Base Example 10 Application:Zeal Limited building a dam Line 1:[+]Feb 1:Sub-contract costs=100m gic Cck:bemet e ant orogressmet m,tohamar pwe pi limittak use nahi ho raha. Tohuss pe interest kyun Line 2:[-]Jul 1:Progress payments=(30m) Line 3:[-]Oct 31:Grant received=(10m) Capitalized Borrowing Cost calculated on thesenet layered amounts at 12%rate. capitalize karein? ## LO8:Mandatory Disclosures The Disclosure Checklist IAS 23 requires entities to formallydisclose just two specific things intheir financial statements:The amount of borrowingcosts capitalised duringthe period. Exam Tip!Disclosures ke pointsexam mein freemarks hote hain.Theory questionsmein inhein lazmilikha karein! The capitalisation rate usedto determine the amountof borrowing costs eligiblefor capitalisation. ## LO9:Practice Question 2(Timeline Mapping) Dekha?Pura saal loan chala,par sirf active construction walay 8 months ka interest Loan Rs.1m @15%(Jan 1).Construction:Mar 1 to Oct 31. CWIP mein gaya.Baq P&L mein expense out ho gaya. Oct Dec 31 Jan 1 Mar Mar Apr May Jun Jul Aug Sep Oct Dec Jan Nov Red Zone→ExpensedGreen Zone→CapitalizedRed Zone→Expensed (1,000

FAQs

What counts as a borrowing cost under IAS 23?

Borrowing costs include interest expense, certain equity-cost elements, and dividends related to specific equity situations. The notes emphasize that share capital-related dividend payments are not treated as borrowing costs; the focus is on loans, debentures, and overdrafts.

How do you calculate interest to be capitalised for specific borrowings?

The guide uses a formula based on interest incurred on specific borrowing: outstanding loan amount × rate × months outstanding / 12. It also instructs excluding suspension periods and stopping when the project ceases, then subtracting temporary investment income.

What mandatory disclosures are required by IAS 23?

IAS 23 requires formal disclosure of (1) the amount of borrowing costs capitalised during the period and (2) the capitalisation rate used to determine which borrowing costs are eligible for capitalisation.

Sep 23, 2026

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