AASB 123 - Borrowing Costs - August 2015

This is AASB 123, an Australian accounting standard that tells businesses how to treat borrowing costs in their financial statements.

What it does: When a company borrows money (like taking out a bank loan), they pay interest and other fees. This standard sets out the rules for when these costs should be:

• Recognised as an expense immediately (deducted from profits right away), or
• Capitalised (added to the cost of an asset being built or acquired, then gradually expensed over time)

Who it affects:

• Companies and other entities that prepare financial statements under Australian accounting standards
• Particularly relevant for businesses undertaking major construction projects or acquiring qualifying assets that take a substantial period to get ready for use

Why it matters: This affects how profitable a company looks in any given year. If borrowing costs are capitalised, profits appear higher in the short term because the interest expense is spread over many years rather than hitting all at once. The standard ensures consistency so investors and regulators can fairly compare different companies' financial health.