Conditions for Capitalizing Borrowing Costs (IAS 23):

1. Qualifying Asset: Borrowing costs can only be capitalized if they are incurred on loans specifically taken out for the purpose of acquiring or constructing a qualifying asset. A qualifying asset is one that requires a substantial period of time to get ready for its intended use or sale, such as property, plant, and equipment.
2. Measurement of Borrowing Costs: The borrowing costs must be directly attributable to the acquisition, construction, or production of the qualifying asset. This includes interest costs, amortization of discounts or premiums related to borrowings, and ancillary costs incurred in obtaining the borrowings.
3. Reliability of Measurement: The borrowing costs should be capable of being measured reliably. Companies must ensure they can accurately track and allocate borrowing costs to the specific assets being financed.

Commencement of Capitalization:

• Capitalization of borrowing costs should commence when:
  1. Expenditures for the asset are being incurred.
  2. Borrowing costs are being incurred.
  3. Activities necessary to prepare the asset for its intended use or sale have commenced.

Suspension of Capitalization:

• Capitalization of borrowing costs should be suspended when:
  • Development of the asset is suspended for an extended period.
  • Delays are not due to normal production processes or substantial technical or administrative work.

Cessation of Capitalization:

• Capitalization should cease when:
  • The asset is substantially completed and ready for its intended use.
  • Any borrowing costs that have been capitalized should remain as part of the asset’s cost, but no additional borrowing costs should be capitalized after substantial completion.