This free, guided checker walks your finance team through the key decision points for IAS 23 Borrowing Costs Capitalization. Answer a few questions to see the likely treatment and the evidence to document.
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This tool is a high-level IFRS screening aid for general information only and is not accounting, audit or legal advice. Conclusions require entity-specific evidence and judgement - confirm the treatment with your advisor.
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IAS 23 applies to borrowing costs directly attributable to acquisition, construction or production of a qualifying asset; equity distributions and unrelated finance costs are outside scope. Borrowing costs include interest computed under the effective interest method, interest on lease liabilities, and exchange differences regarded as an adjustment to interest (IAS 23.6). Trace each facility to its use of proceeds before concluding on attribution.
Recognize the borrowing costs as an expense in the period incurred under IAS 23.8; the IAS 23 capitalization requirements are not engaged.
Official guidance: IFRS issued standards
Inventories manufactured routinely, assets ready for use on acquisition, and equity-accounted investees are not qualifying assets under IAS 23.5 and IAS 23.7. The standard does not define a substantial period, so document the entity's threshold - commonly twelve months - and apply it consistently across projects. Financial assets are never qualifying assets (IAS 23.7).
Expense the borrowing costs under IAS 23.8; the asset is not a qualifying asset as defined in IAS 23.5 and illustrated in IAS 23.7.
Official guidance: IFRS issued standards
Capitalization is required for cost-measured qualifying assets; capitalization of borrowing costs on fair-value inventories or investment property is permitted but not required under IAS 23.4. Because fair value measurement makes the carrying amount independent of accumulated cost, the relief avoids valuation noise. Identify the measurement standard governing the asset before concluding which track applies.
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Official guidance: IFRS issued standards
IAS 23 permits but does not require capitalization when the qualifying asset is measured at fair value such as certain investment property or biological assets. Whichever choice is made is an accounting policy: document it and apply it consistently to similar fair-value qualifying assets under IAS 8.13. Switching between capitalizing and expensing project by project is the common inconsistency reviewers flag.
Expense the borrowing costs as incurred; IAS 23.4(a) permits qualifying assets measured at fair value to remain outside the capitalization requirements.
Official guidance: IFRS issued standards
Capitalization begins when expenditures, borrowing costs, and activities necessary to prepare the asset are underway under IAS 23.17. Activities encompass more than physical construction and include technical and administrative work such as obtaining permits (IAS 23.19), but holding an asset with no development in progress does not qualify. Evidence the commencement date with the project ledger and activity records.
Expense borrowing costs until all three commencement conditions in IAS 23.17 - expenditures, borrowing costs, and preparation activities - are met.
Official guidance: IFRS issued standards
IAS 23.20 requires suspension of capitalization during extended periods when active development is interrupted, with borrowing costs in those windows expensed. Capitalization continues while substantial technical and administrative work proceeds, or when a delay is a necessary part of getting the asset ready, such as inventory maturation or seasonal water levels on a bridge project (IAS 23.21). Keep a development activity log so suspension windows are identifiable and auditable.
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Official guidance: IFRS issued standards
For funds borrowed specifically to obtain the qualifying asset, capitalize the actual borrowing costs incurred during the period less any investment income on the temporary investment of those borrowings (IAS 23.12). Trace the facility agreement to the project to evidence the specific-purpose link. Forgetting to net investment income when undrawn proceeds sit in deposits is the recurring error on specific borrowings.
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Official guidance: IFRS issued standards
Apply a capitalization rate equal to the weighted average of the borrowing costs on general borrowings outstanding during the period, excluding specific borrowings, to expenditures on the qualifying asset (IAS 23.14). Expenditures are measured net of progress payments and grants received (IAS 23.18). The amount capitalized in a period cannot exceed the borrowing costs actually incurred in that period.
Complete the general borrowings allocation by applying the IAS 23.14 weighted-average capitalization rate to expenditures on the qualifying asset.
Official guidance: IFRS issued standards
Capitalization ceases when substantially all activities necessary to prepare the asset for intended use or sale are complete under IAS 23.22 even if finishing work continues. An asset is normally ready when physical construction is complete despite routine administrative work or minor modifications outstanding (IAS 23.23), and each separately usable part stops capitalizing when that part is substantially complete (IAS 23.24). Continuing to capitalize interest on completed-but-unsold assets is the classic overstatement.
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Official guidance: IFRS issued standards
When a qualifying asset carrying amount exceeds recoverable amount or net realisable value, the excess capitalized borrowing costs are written down under IAS 23.16. Capitalizing interest never justifies carrying an asset above what it can recover, so pair the capitalization schedule with the impairment or NRV assessment at each reporting date. Development properties in falling markets are the highest-risk population.
Test the asset under IAS 36 or IAS 2 and write down any excess of carrying amount over recoverable amount or net realisable value as required by IAS 23.16.
Official guidance: IFRS issued standards
Borrowing costs not directly attributable to a qualifying asset are expensed in profit or loss when incurred under IAS 23.8. The attribution test is avoidability: costs are directly attributable only if they would have been avoided had the expenditure on the qualifying asset not been made (IAS 23.10). Split the total borrowing cost pool between capitalized and expensed amounts and reconcile it to the finance cost line.
Expense borrowing costs not directly attributable to qualifying assets in the current period as required by IAS 23.8.
Official guidance: IFRS issued standards
IAS 23.26 requires disclosure of borrowing costs capitalized during the period and the capitalization rate used for general borrowings when applicable. Reconcile the disclosed amount to the additions column of the PP&E or development-asset rollforward so the note and the primary statements agree. A disclosed rate materially different from the facility rates invites audit challenge, so retain the rate computation.
Borrowing costs are capitalized under IAS 23.8-14 for the correct period with the IAS 23.26 note disclosures in place. Complete the IAS 23.26 disclosures of the amount capitalized and the capitalization rate before finalizing the financial statements.
Official guidance: IFRS issued standards
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