When you’re trying to build a building then you may borrow money from the bank and the bank may charge you interest. Maybe you should expense them in the I/S? or you can capitalise them as cost to the building and depreciate them over the useful life?

Well IAS 23 borrowing costs specifies that in some circumstances that these interest expense can be capitalised as cost to the building.

  1. it should be a qualifying asset:

    the asset takes a substantial period of time to get ready for its intended use or sale.


    • Inventories that require a substantial period of time to bring them to a saleable condition, eg, a big ship
    • Manufacturing plants
    • Power generation facilities
    • Investment properties

  1. The amount to capitalise?
    • Borrowing costs – temporary investement income
    • General funds raised not specific for the asset? (use weighted average borrowing costXasset value)

  3. when to capitalise?
    1. Start capititalisation:

      Later of:

      • activity begins (start building)
      • Borrowing costs incurred (take loan)
      • Buy something(buy the land)
    2. Pause to be capitalised
      • When the activity is disruppted, eg, strike
    3. Ceased to be capitalised
      • When the asset is intented for use not necessarily actually for use.
  4. Disclosure:
    • Amount of borrowing cost capitalised during the period
    • Capitalisation rate used