Ind AS 23: Borrowing Costs — Detailed Guide

Standard orientation

What Ind AS 23 is designed to achieve

Require borrowing costs directly attributable to acquiring, constructing or producing a qualifying asset to form part of that asset’s cost, while other borrowing costs are expensed.

Scope: Applies to borrowing costs but not actual or imputed equity costs. An entity is not required to capitalise costs for qualifying assets measured at fair value or inventories produced in large quantities on a repetitive basis.

Qualifying asset

Necessarily takes a substantial period to get ready for intended use or sale.

Specific borrowing

Capitalise actual cost less temporary-investment income.

General borrowing

Apply weighted-average capitalisation rate to qualifying expenditure.

Timing

Start only when expenditure, borrowing cost and preparation activities all exist.

Reading method: Paragraph references are preserved, but requirements are paraphrased and grouped where they form one integrated rule. Read with the current notified standard.

Full standard map

Paragraph-by-paragraph register

Every operative section is mapped below, including relevant appendices, omitted paragraphs and transition history.

Paragraphs	Requirement and simple decode
1	Core principle Directly attributable borrowing costs form part of the qualifying asset; all other borrowing costs are expensed.
2–4	Scope and optional exemptions Covers borrowing costs, excludes equity costs, and permits non-application for fair-value assets and large-volume repetitive inventories.
5	Definitions Defines borrowing costs and qualifying asset.
6	Components of borrowing costs Includes effective-interest expense, lease-liability interest and qualifying exchange differences.
6A	Indian foreign-exchange adjustment Limits exchange-loss treatment to the excess that does not exceed the functional-currency borrowing-cost differential and reverses prior adjustments when gains arise.
7	Examples and exclusions Possible qualifying assets include inventories, plants, power facilities, intangibles, investment property and bearer plants; ready-for-use assets, financial assets and quickly produced inventory are excluded.
8–9	Recognition Capitalise directly attributable costs when probable and reliably measurable; expense other borrowing costs.
10–11	Avoidable-cost concept and judgement Capitalisable cost is the borrowing cost avoided if qualifying-asset expenditure had not occurred; central treasury and group financing require judgement.
12–13	Specific borrowings Capitalise actual borrowing cost less investment income on temporarily invested funds.
14–15	General borrowings and capitalisation rate Apply weighted-average borrowing cost to qualifying expenditure, excluding specific borrowings until their asset is substantially ready; total capitalised cannot exceed borrowing cost incurred.
16	Recoverability ceiling When carrying amount exceeds recoverable amount or NRV, write down under the applicable standard.
17	Commencement conditions Begin only when expenditures are incurred, borrowing costs are incurred and activities necessary to prepare the asset are underway.
18	Qualifying expenditures Use cash payments, transfers of other assets or assumption of interest-bearing liabilities, reduced by progress receipts and grants.
19	Necessary activities Can include technical and administrative work before physical construction, but not merely holding an inactive asset.
20–21	Suspension Suspend during extended interruption of active development, but not for necessary temporary delays or substantial technical/administrative work.
22–23	Cessation Stop when substantially all preparation activities are complete; minor decoration or administrative work does not extend capitalisation.
24–25	Assets completed in parts Stop separately for independently usable parts; continue for parts that cannot function until the integrated project is complete.
26	Disclosure Disclose amount capitalised and capitalisation rate.
27–28A	Transition Historical paragraphs are omitted; the 2018 annual improvement applies prospectively to borrowing costs from initial application.
29–29D	Effective-date history Tracks Ind AS 116 and annual improvements; current reporting uses the present notified wording.
Appendix A	Cross-references Links decommissioning liabilities and service-concession arrangements to borrowing-cost analysis.
Appendix 1	Difference from IAS 23 Highlights India’s paragraph 6A guidance and omitted transition/effective-date paragraphs.

Major areas decoded

Technical requirements in simple language

Substantial period

The standard does not prescribe a fixed number of months. Nature, complexity and normal preparation time matter.

Specific versus general pools

Specific debt remains specific until the related asset is substantially ready; after that, outstanding debt may enter the general-borrowing pool.

Weighted-average expenditures

General borrowing capitalisation is ordinarily based on time-weighted qualifying expenditure, not simply closing work-in-progress.

Foreign-currency borrowing

Only the interest-adjustment portion qualifies. The entire exchange loss is not automatically borrowing cost.

Suspension

Management-caused or abnormal extended delay usually suspends capitalisation. Necessary seasonal or technical delay may not.

Cut-off by component

A business park can stop capitalising building by building when each is usable; an integrated steel plant may require completion of the whole sequence.

Visual learning

Finin2min decision map

Editable SVG and high-resolution PNG versions are included in the batch assets folder.

Exceptions and high-risk points

What professionals frequently overlook

Capitalisation is not required for fair-value qualifying assets and large-volume repetitive inventory.
Equity costs and imputed return on own funds are outside the standard.
Temporary investment income reduces specific borrowing cost but not a general borrowing rate calculation in the same way.
An asset ready when acquired is not a qualifying asset.
Administrative and technical preparation can support commencement before physical construction.
Temporary delay inherent in the process does not necessarily suspend capitalisation.
Capitalised cost cannot exceed total borrowing costs incurred.
Foreign-exchange differences require paragraph 6A’s ceiling and reversal logic.

Practical application

Transaction examples

Fact pattern

Treatment

Reason

Dedicated construction loan at 9%

Specific borrowing

Capitalise actual interest less temporary investment income.

Corporate term loans used partly for plant construction

General borrowing

Apply weighted-average rate to time-weighted qualifying expenditure.

Short-cycle finished goods inventory

Expense

Does not take a substantial period to get ready.

Two-year whisky maturation inventory

Potential qualifying asset

Production necessarily requires a substantial period.

Foreign loan exchange loss

Partly borrowing cost

Apply paragraph 6A; excess exchange loss follows Ind AS 21.

Monsoon pause necessary for curing/settling process

Continue if necessary

A normal required delay may not be an extended interruption of active development.

Accounting mechanics

Illustrative journal entries

Entries are simplified and exclude tax, GST, foreign-currency and entity-specific presentation effects unless stated.

Specific borrowing capitalisation

Dr Qualifying asset / CWIP Cr Finance cost / Interest payable

Non-qualifying borrowing cost

Dr Finance cost Cr Interest payable

Suspension period

Dr Finance cost Cr Interest payable

Exchange difference qualifying under paragraph 6A

Dr Qualifying asset / CWIP Cr Foreign exchange difference / Payable

CA / finance / boardroom cases

Applied case studies

1. Capitalisation before site work

Applied case

Land is acquired and design, permits and engineering are active for four months before excavation.

Finin2min analysis: Capitalisation can begin when all paragraph 17 conditions are met. Physical construction is not the only qualifying activity.

2. General borrowing rate

Applied case

An entity has 8%, 10% and 12% general loans. One 9% specific project loan remains outstanding after its project is ready.

Finin2min analysis: For the new qualifying asset, calculate a weighted-average rate on general borrowings and include the formerly specific loan only after its original qualifying asset is substantially ready.

3. Project halted for funding dispute

Applied case

Construction stops for nine months because the entity cannot arrange equity funding.

Finin2min analysis: Normally suspend capitalisation during the extended inactive period and expense borrowing cost.

4. Residential units completed in phases

Applied case

Each tower can be occupied independently while later towers remain under construction.

Finin2min analysis: Cease capitalisation for each completed tower when substantially ready; continue for unfinished towers.

5. Foreign borrowing comparison

Applied case

USD borrowing interest plus exchange loss is lower than equivalent INR borrowing cost.

Finin2min analysis: Only the paragraph 6A adjustment up to the permitted differential is borrowing cost; the remaining exchange difference follows Ind AS 21.

Global comparison

Ind AS versus IFRS and US GAAP

Topic	Ind AS	IFRS	US GAAP
Exchange-difference guidance	Paragraph 6A prescribes a method and ceiling.	IAS 23 contains no equivalent detailed method.	US GAAP generally does not treat foreign-exchange differences as capitalised interest in the same manner.
Qualifying inventory	Can qualify; repetitive mass-produced inventory has optional exemption.	Broadly aligned.	Interest may be capitalised for assets requiring time; detailed scope differs.
Specific borrowing income	Temporary-investment income reduces eligible borrowing cost.	Broadly aligned.	US GAAP’s avoidable-interest model differs and investment income treatment is not identical.
General rate	Weighted average of relevant borrowings; formerly specific debt enters pool after completion.	Broadly aligned after annual improvement.	US GAAP uses an avoidable-interest approach based on weighted accumulated expenditures.
Fair-value assets	Optional exemption from capitalisation.	Broadly aligned.	US GAAP scope differs by asset and industry guidance.

Comparison caution: “Broadly aligned” does not mean identical. Apply entity type, regulator, transition date, statutory format and current amendments.

Implementation lens

Implications for key stakeholders

CFO / Treasury

Define borrowing pools, project mapping, FX methodology and review cut-off.

Project finance

Maintain expenditure timing, project status and interruption evidence.

FP&A

Separate cash interest from capitalised interest and explain EBITDA/P&L impact.

Tax

Track capitalised book interest, tax deductibility and temporary differences.

Audit committee

Challenge prolonged capitalisation, suspended projects and foreign-exchange adjustments.

Quality-control watchlist

Common errors and exam traps

Capitalising interest before necessary preparation activities start.
Using closing CWIP instead of time-weighted expenditure.
Failing to deduct temporary investment income from specific borrowing cost.
Including all foreign-exchange loss in borrowing costs.
Continuing capitalisation through abnormal extended delays.
Stopping too late because minor finishing work remains.
Treating an asset ready at acquisition as qualifying.
Excluding a completed project’s specific loan from the general pool indefinitely.
Capitalising more than total borrowing costs incurred.
Omitting the disclosed capitalisation rate.

Finin2min Q&A

Frequently asked questions

1. What is a substantial period?

It is judgemental and depends on the asset’s nature and normal preparation process; no universal minimum is prescribed.

2. Can inventory be a qualifying asset?

Yes, when it necessarily takes substantial time, subject to the repetitive-production exemption.

3. When does capitalisation start?

Only when expenditure, borrowing cost and active preparation all exist.

4. Is all foreign-exchange loss capitalised?

No. Paragraph 6A limits the amount treated as an interest adjustment.

5. When is capitalisation suspended?

During extended periods in which active development is interrupted, unless the delay is necessary to the process.

6. Can capitalisation stop part by part?

Yes, when a completed part can be used independently.

Two-minute revision

Finin2min cheat sheet

START–PAUSE–STOP = Spend + Interest + Activity → Suspend abnormal delay → Stop when ready

Document the facts, recognition trigger, measurement basis, cross-standard interaction, significant judgement and disclosure consequence.

Validation register

Primary and authoritative sources

ICAI 2025–26 Ind AS 23 official HTMLPrimary or authoritative reference used for validation.
Open source ↗

ICAI Educational Material — Ind AS 23Primary or authoritative reference used for validation.
Open source ↗

IFRS Foundation — IAS 23Primary or authoritative reference used for validation.
Open source ↗

FASB Statement 34 summaryPrimary or authoritative reference used for validation.
Open source ↗

FASB CodificationPrimary or authoritative reference used for validation.
Open source ↗

Review date: 26 June 2026. Recheck later MCA notifications, ICAI compendiums and final international amendments before using this article for a later reporting period.