Accounting Standard 16 - The objective of AS 16 is accounting for borrowing costs. It does not deal with the actual or imputed cost of owners’ equity, including preference share capital not classified as a liability.
Borrowing costs are interest and other costs incurred by an enterprise in connection with the borrowing of funds.
A qualifying asset is an asset that necessarily takes a substantial period of time to get ready for its intended use or sale
Examples of qualifying assets are manufacturing plants, power generation facilities, inventories that require a substantial period of time to bring them to a saleable condition, and investment properties. Other investments and those inventories that are routinely manufactured or otherwise produced in large quantities on a repetitive basis over a short period of time, are not qualifying assets. Assets that are ready for their intended use or sale when acquired also are not qualifying assets.
Ind AS 23 Borrowing Costs
Borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset form part of the cost of that asset. Other borrowing costs are recognised as an expense. Borrowing costs are interest and other costs that an entity incurs in connection with the borrowing of funds.
Difference Between AS 16 and Ind AS 23
|AS 16||IND AS 23|
|AS 16 explains the meaning of “substantial period of time”.||This explanation is not included in IND AS 23.|
|AS 16 does not require the same.||IND AS 23 requires the disclosure of capitalisation rate, used to determine the amount of borrowing costs eligible for capitalisation.|
|Does not provide for such exemption.||Does not apply to borrowing costs directly attributable to qualifying asset measured at fair value. (eg: biological assets)|
|AS 16 does not contain similar explanation, because in India, there is no standard on Financial Reporting in Hyperinflationary Economies.||IND AS 23 states that when the standard on Financial Reporting in Hyperinflationary Economies (Ind AS 29) is applied, part of the borrowing cost, that compensates for inflation should be expensed off.|
|Does not provides any exemption and is applicable to all borrowing costs that require substantial period of time to bring them in saleable conditon.||IND AS 23 is not applicable to borrowing costs attributable to inventories, that are produced or manufactured, in large quantities and on repititive basis.|
|This specific provision is not there in the existing AS.||Specifically states that in some circumstances, it is appropriate to combine the borrowings of the parent and its subsidiaries for computing a weighted average of the borrowing costs while in other circumstances, it is appropriate for each subsidiary to use a weighted average of the borrowing costs applicable to its own borrowings.|
As per AS 16, Borrowing Costs, amongst other things, include the following:
(a) interest and commitment charges on bank borrowings and other short-term and long-term borrowings;
(b) amortisation of discounts or premiums relating to borrowings;
(c) amortisation of ancillary costs incurred in connection with the arrangement of borrowings;
|In lieu of this, IND AS 23 states that Borrowing Costs incude interest expense calculated using effective interest method as described in IND AS 109.|
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