IAS 23 Borrowing Costs requires that borrowing costs directly attributable to the acquisition, construction or production of a ‘qualifying asset’ (one that necessarily takes a substantial period of time to get ready for its intended use or sale) are to be capitalised or included in the cost of the asset once they meet certain conditions.
Required:
Identify THREE conditions that must be met before an entity can commence to capitalise borrowing cost. (3 marks)
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- expenditures are being incurred,
- borrowing costs are being incurred and
- activities that are necessary to prepare the asset for its intended use or sale are in progress (may include some activities prior to commencement of physical production).