AASB 123 - Borrowing Costs - July 2004
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Introduction
Borrowing costs are defined in both AASB 123 and AASB 1036 as interest and other costs incurred by an entity in connection with the borrowing of funds. The primary difference between two is that this Standard permits a choice between two treatments of borrowing costs. The benchmark treatment in this Standard requires all borrowing costs to be expensed in the period incurred. The treatment prescribed in AASB 1036 (requiring capitalisation of borrowing costs directly attributable to the acquisition, construction or production of a qualifying asset and expensing in the reporting period other borrowing costs incurred in that period) is continued in this Standard as the alternative to the benchmark treatment. Both AASB 123 and AASB 1036 define a qualifying asset as an asset that necessarily takes a substantial period of time to get ready for its intended use or sale and contain consistent requirements in respect of the commencement, suspension and cessation of the capitalisation of borrowing costs.