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AASB 123 - Borrowing Costs
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Summary 
Developments, Key Differences & History 
Compared to IFRS 
Interpretations 
Rejection Notices 
Questions & Answers 
Articles 
AASB website 

 
Currency of material 
This material was last updated in September 2008.  
 
Overview 
AASB 123 Borrowing Costs (reissued June 2007) is equivalent to IAS 23 of the same name as issued by the International Accounting Standards Board. AASB 123 prescribes the accounting for borrowing costs directly attributable to the acquisition, construction or production of a qualifying asset. It is applicable for annual reporting periods beginning on or after 1 January 2009, with early adoption permitted. 
 
SUMMARY 
The main requirements of AASB 123 are: 
 
Application and Scope (paragraphs Aus1.1-4)
  • This standard is not required to be applied to borrowing costs directly attributable to a qualifying asset measured at fair value (eg a biological asset) or inventories that are manufactured/produced in large quantities on a repetitive basis.
Definitions (paragraphs 5-7) 
Include borrowing costs and qualifying asset.
  • Borrowing costs may include:
    • Interest on bank overdrafts and borrowings
      •  
    • Amortisation of discounts or premiums relating to borrowings
      •  
    • Finance charges in respect of finance leases.
    •  
  • Qualifying assets may include:
    • Inventories
      •  
    • Manufacturing plants
      •  
    • Power generation facilities
      •  
    • Intangible assets
      •  
    • Investment properties.
Recognition (paragraphs 8-25)
  • Borrowing costs directly attributable to the acquisition, construction of a qualifying asset must be capitalised as part of the cost of the asset.
    •  
  • All other borrowing costs must be expensed when incurred.
    •  
  • If funds are borrowed generally and used for the purpose of obtaining the qualifying asset, then a capitalisation rate (weighted average of borrowing costs applicable to the general outstanding borrowings) is applied to the expenditure incurred on the asset to determine the amount of borrowing costs eligible for capitalisation.
    •  
  • If the carrying amount of the qualifying asset exceeds its recoverable amount or net realisable value, the asset must be written down in accordance with other relevant standards.
    •  
  • Capitalisation should commence when:
    • Expenditures for the asset are being incurred
      •  
    • Borrowing costs are being incurred
      •  
    • Activities that are necessary to prepare the asset for its intended use or sale are in progress.
  • Capitalisation of borrowing costs must cease when substantially all the activities to prepare the qualifying asset for its intended use or sale are complete.
Disclosure (paragraph 26)
  • Amount of borrowing costs capitalised during the period.
    •  
  • The capitalisation rate used to determine the amount of borrowing costs for capitalisation.
 
The information provided is a brief summary of the requirements of this standard and is not intended to be used as a substitute for reading the standard itself nor does it attempt to provide any interpretative advice. To apply the standard to their particular circumstances readers are encouraged to read the text of the standard and, if necessary, seek professional advice from a Chartered Accountant or other suitably qualified professional. The Institute expressly disclaims all liability for any loss or damage arising from reliance upon any information or inaccurate statement made in this summary.