IAS 23- interest expense as per IFRS 9

[Orpheus]

As per IAS 23, borrowing costs may include interest expense calculated using the effective interest method as described in IFRS 9.

Does this mean that loan processing fees paid should be amortized over the loan term (for which borrowing costs have been incurred) using EIR method?

Or, rather, can we simply charge the processing fees over the term in which the qualifying asset is expected to be ready for intended use or sale.

[JakobLavrod]

Yes, it should be include in the EIR method. However in practice, in often does not make a huge material difference to just straight line amortize the fee (but EIR is the more correct method).

[Orpheus]

Hey Jakob, I've got two more queries regarding the capitalization of borrowing costs.
If you see this, please help me out.

Capitalization of borrowing costs can be commenced from the commencement date, for which there are 3 criteria, including:

1. expenditures for the asset
This again has 3 other criteria among which one is that expenditures that have resulted in assumption of interest bearing liabilities.
So, does this mean that, if a specific borrowing is availed for a qualifying asset, from the date of availing such borrowing, would it be an assumption of interest bearing liability and thereby, capitalization of borrowing costs can be initiated right away?

2. it undertakes activities that are necessary to prepare the asset for its intended use or sale.
My query for this is that, we made a contract with a construction company for the construction of our office building. However, due to their own internal issues, they could not start their work for 6 more months, after the contract date.
Since, we did undertake activities for preparation of asset, from signing the contract with the company, can we initiate capitalization from that date? Or, only after 6 months, when the contractor starts their work?

Thanks!!

[Marek Muc]

Hi, please start separate topics for each issue