SRI LANKA ACCOUNTING STANDARDS – LKAS 23

BORROWING COST

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SRI LANKA ACCOUNTING STANDARDS – LKAS 23BORROWING COST

Content

Introduction Scope Definition Accounting Treatment Disclosure

SRI LANKA ACCOUNTING STANDARDS – LKAS 23BORROWING COST

Introduction

Previous standard was SLAS 20. New standard

came into effect from 01-01-2013

This standard prescribe the accounting treatment for borrowing cost

Borrowing costs recognize as• Directly attributable to asset• Expense in the period

SRI LANKA ACCOUNTING STANDARDS – LKAS 23BORROWING COST

Scope

Apply on borrowing cost

Does not deal with actual or imputed cost of equity.

Not required to apply on a qualifying asset measured at fair value e.g. biological asset

Inventories produced on large quantities on a repetitive basis

SRI LANKA ACCOUNTING STANDARDS – LKAS 23BORROWING COST

Definition

Borrowing Cost

Borrowing cost are interest and other costs incurred by an enterprise in connection with the borrowing of funds.

SRI LANKA ACCOUNTING STANDARDS – LKAS 23BORROWING COST

Borrowing Costs Include

• Interest on bank overdraft and borrowings

• Amortization of discounts or premiums on borrowings

• Amortization of ancillary costs

• Finance charges on finance leases

• Exchange differences arises from foreign currency in borrowing

SRI LANKA ACCOUNTING STANDARDS – LKAS 23BORROWING COST

Borrowing cost can classified as follows

Borrowing Cost

Related with Related with other

Qualifying asset borrowing cost

SRI LANKA ACCOUNTING STANDARDS – LKAS 23BORROWING COST

Qualifying Assets

A Qualifying asset is a asset that necessarily take a substantial period of time to get ready for its intended use or sale.

Depending on the circumstances, any of the following may be qualifying assets:

• Inventories

• Manufacturing plants

• Power generation facilities

• Intangible assets

• Investment properties

SRI LANKA ACCOUNTING STANDARDS – LKAS 23BORROWING COST

Recognition

• Capitalize Directly attributable to acquisition, construction

or production of a qualifying asset as part of cost

• Expense Recognize other borrowing cost as an expense in

the period in which it incurs

SRI LANKA ACCOUNTING STANDARDS – LKAS 23BORROWING COST

Borrowing cost eligible for capitalization

Capitalization rate

Commencement of capitalization

Suspension of capitalization

Cessation of capitalization

Partial Completion

Impairment

SRI LANKA ACCOUNTING STANDARDS – LKAS 23BORROWING COST

Disclosure

The amount capitalized during the period

The capitalization rate used to determine the borrowing cost

SRI LANKA ACCOUNTING STANDARDS – LKAS 23BORROWING COST

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