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Hello Mike,
There is this question on borrowing costs which I’ve been wanting to ask for a long time
Notes to the FS given (Mar/Jun 17 – Q1a):
“A $20 million loan taken out during the year, the cash being used to finance a specific new product development project”The answer says:
The interest cover is stable and indeed the finance cost recognised is constant at $7 million each year. Given that the Group took out a $20 million loan in January 2017, it would be expected that finance charges should increase to take account of interest accruing on the new element of the loan. There is therefore a risk that finance charges and the associated loan liability are understated.My question is:
Shouldn’t the borrowing costs incurred on the new loan be capitalised under IAS 23 if the project meets the definition of qualifying asset?
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