CAPITALISATION OF IAS 23 BORROWING COSTS AND EFFECTS ON FINANCIAL STATAMENTS

Abstract

IAS 23 Borrowing Costs allows that the capitalization of borrowing costs is directly related to purchase, construction or production of a qualifying asset. Other borrowing costs are recognized as an expense. Borrowing costs are interest and other costs that an entity incurs in connection with the borrowing of funds. Businesses can use accounting for these costs in the case of capitalization of qualifying assets. In the accounting standard, a qualifying asset is defined that an assets takes a substantial period of time to get ready for its intended use or sale. The capitalization of borrowing costs appears to be some difference etc. will change of a qualifying asset’s book value, the enterprises profit/loss, tax expense in the period and some other account in the balance sheet. Qualifying assets could be inventories, manufacturing plant, power generation facilities, intangible assets and investment property. The amount of depreciation that calculated according to the estimated useful lives for assets other than inventories will also be the effect of account in the balance sheet as a change. This application also will impact on deferred tax assets. This study is aimed to identify how capitalization of borrowing costs of businesses that have qualifying assets. Businesses how show to capitalization of borrowing costs in the balance sheets and it has tried to analyze how it will affect their balance sheets in the event of not capitalization. At the same time examined what are use of the qualifying assets of businesses. Consequently, how current taxes are affected by capitalization of borrowing costs is explained.