Ind AS 23, Borrowing Costs | Difference Between AS 16 & Ind AS 23

Ind AS 23, Borrowing Expenses: Loaning costs that are directly attributable to the acquisition, building and construction, or production of a certifying asset type part of the expense of that possession. Loaning costs are interest and other expenses that an entity sustains in connection with the loaning of funds.

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Acknowledgment under Ind AS 23

An entity will capitalise borrowing costs that are straight attributable to the acquisition, construction or production of a qualifying property as part of the expense of that property. An entity shall recognise other loaning expenses as an expense in the duration in which it incurs them.

A certifying property is an asset that necessarily takes a considerable duration of time to get ready for its intended use or sale.

To the extent that an entity borrows funds specifically for the purpose of acquiring a certifying asset, the entity will figure out the amount of borrowing expenses eligible for capitalisation as the real borrowing costs sustained on that borrowing throughout the period less any investment earnings on the short-lived investment of those loanings.

To the degree that an entity borrows funds generally and utilizes them for the purpose of getting a qualifying property, the entity shall figure out the quantity of loaning 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 suitable to the borrowings of the entity that are outstanding throughout the duration, besides borrowings made particularly for the function of acquiring a qualifying possession. The amount of loaning costs that an entity capitalises throughout a duration will not exceed the amount of borrowing costs it sustained during that duration.

An entity shall start capitalising borrowing costs as part of the expense of a qualifying asset on the commencement date. The commencement date for capitalisation is the date when the entity first meets all of the list below conditions:

  • it sustains expenditures for the possession;-LRB-
  • it sustains loaning expenses; and
  • it carries out activities that are essential to prepare the possession for its designated usage or

An entity will suspend capitalisation of loaning expenses throughout extended periods in which it suspends active development of a certifying asset.

An entity shall stop capitalising borrowing expenses when considerably all the activities required to prepare the qualifying possession for its intended use or sale are total.

An entity shall disclose

  • the amount of borrowing expenses capitalised during the duration; and
  • the capitalisation rate utilized to figure out the amount of loaning expenses qualified for

Distinction In Between AS 16 and Ind AS 23

AS 16 IND AS 23
AS 16 discusses the meaning of “significant amount of time”. This explanation is not included in IND AS 23.
AS 16 does not require the exact same. IND AS 23 needs the disclosure of capitalisation rate, used to identify the quantity of borrowing expenses eligible for capitalisation.
Does not offer such exemption. Does not use to obtaining costs directly attributable to qualifying property determined at reasonable value. (eg: biological properties)
AS 16 does not consist of comparable explanation, since in India, there is no requirement on Financial Reporting in Hyperinflationary Economies. IND AS 23 specifies that when the requirement on Financial Reporting in Hyperinflationary Economies (Ind AS 29) is used, part of the loaning expense, that makes up for inflation must be expensed off.
Does not supplies any exemption and applies to all obtaining costs that need significant amount of time to bring them in salable conditon. IND AS 23 is not relevant to borrowing costs attributable to stocks, that are produced or produced, in big quantities and on repititive basis.
This specific arrangement is not there in the existing AS. Particularly states that in some circumstances, it is appropriate to integrate the loanings of the moms and dad and its subsidiaries for calculating a weighted average of the borrowing costs while in other circumstances, it is suitable for each subsidiary to use a weighted average of the loaning costs appropriate to its own borrowings.
According To AS 16, Loaning Expenses, amongst other things, consist of the following:

( a) interest and commitment charges on bank borrowings and other short-term and long-term borrowings;-LRB-

( b) amortisation of discount rates or premiums associating with loanings;-LRB-

( c) amortisation of ancillary costs sustained in connection with the arrangement of borrowings;-LRB-

In lieu of this, IND AS 23 states that Borrowing Costs incude interest expense determined using efficient interest approach as explained in IND AS 109.

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