IAS 23 Borrowing Costs

This is a post of my own detailed and thorough explanation on the standards of the subject I'm taking, P2 Corporate Reporting (ACCA)

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IAS 23 Borrowing Costs
It is an interest incurred on loan taken to acquire qualifying asset which is asset that will take time to get ready for intended use. For example, property, plant and equipment, investment property and intangible assets during development stages.
Buying a delivery vehicle cannot be capitalized while constructing a building can be capitalized because it needs time to get ready.
Borrowing cost can be capitalized when the interest is directly attributable to construction, production and acquisition. Meanwhile, if it is other interest, it must be write off as expenses.

There are two capitalization rate which are :
Specific Borrowing - It is the specific interest rate less income from temporary investment.
General Borrowing - It is the weighted average rate. Total interest divided by total loan amount.

Commencement of capitalization is the borrowing cost incurred when the construction activities started and the expenses incurred. 
If there is temporary suspension, it cannot be capitalized thus the interest will be written off as expense. 
Cessation of the capitalization is when the asset is physically completed and substantially ready for use.

The reasons for capitalization is even though the asset is purchased, the developer will also include the interest cost to reflect the market cost of  the asset.

Ends,