A.1 Exchange rate differences arising frA.1 Exchange rate differences arising from foreign currency borrowings

A.1 Exchange rate differences arising from foreign currency borrowings

Borrowing costs are defined in both AASB 123.4 and AASB 1036.11.1 as interest and other costs incurred by an entity in connection with the borrowing of funds. AASB 123.5(e) comments that borrowing costs include exchange differences arising from foreign currency borrowings, but only to the extent that they are regarded as an adjustment to interest costs. AASB 1036.11.1.2(e) comments that all exchange differences arising from foreign currency borrowings, net of the effects of any hedge of the borrowings, are included within the definition of borrowing costs. Therefore:

• to the extent that exchange differences arising from foreign currency borrowings are not regarded as an adjustment to interest costs, they would be excluded from borrowing costs under AASB 123 but included in borrowing costs under AASB 1036, net of the effects of any hedge of the borrowings; and
• to the extent that exchange differences arising from foreign currency borrowings are regarded as an adjustment to interest costs, they would be included in borrowing costs under both AASB 123 and AASB 1036. The amount included in borrowing costs under AASB 1036 would be adjusted for the effects of any hedge of the borrowings. Based on a literal reading of AASB 123.5(e), the amount included in borrowing costs would not be adjusted for the effects of any hedge of the borrowings.