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Commission Regulation (EC) No 1725/2003 of 29 September
2003 adopting certain international accounting standards
in accordance with Regulation (EC) No 1606/2002 of the
European Parliament and of the Council.
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Consistency
- capitalisation of borrowing costs
Paragraph 11 of IAS 1 (revised
1997), presentation of financial statements, requires that
financial statements should not be described as complying
with International Accounting Standards unless they comply
with all the requirements of each applicable standard and
each applicable interpretation issued by the Standing
Interpretations Committee. SIC interpretations are not
intended to apply to immaterial items.
Reference: IAS
23, borrowing costs.
Issue
1. IAS 23.07 and 23.11 allow
the choice of either:
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(a) recognising all borrowing
costs as an expense in the period in which they are incurred
(benchmark treatment); or
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(b) capitalising borrowing
costs that are directly attributable to the acquisition,
construction or production of qualifying assets as part of
the cost of that asset (allowed alternative treatment).
2. The issue is whether an
enterprise that has chosen a policy of capitalising borrowing
costs should apply this policy to all qualifying assets or
whether an enterprise may choose to capitalise borrowing costs
for certain qualifying assets and not for others.
Consensus
3. Where an enterprise adopts the
allowed alternative treatment, that treatment should be
applied consistently to all borrowing costs that are directly
attributable to the acquisition, construction or production of
all qualifying assets of the enterprise. If all the conditions
laid down in IAS 23.11 are met, an enterprise should continue
to capitalise such borrowing costs even if the carrying amount
of the asset exceeds its recoverable amount. However, IAS
23.19 explains that the carrying amount of the asset should be
written down to recognise impairment losses in such cases.
Date of
consensus: July 1997.
Effective date:
Periods beginning on or after 1 January 1998; earlier
application is encouraged. Changes in accounting policies
should be accounted for using the transition requirements
of IAS 23.30. Therefore, an enterprise using the allowed
alternative treatment may choose not to capitalise all
borrowing costs incurred before the effective date of this
interpretation.
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