How should borrowing costs relating to an asset being constructed over a substantial period of time be treated in the accounts?
A) expensed as incurred
B) capitalised and amortised over the period of the construction of the asset
C) accrued and amortised over the period of the loan
D) capitalised as part of the cost of the asset

Question

Quizplus · Accepted Answer

Borrowing costs relating to an asset being constructed over a substantial period of time should be capitalized as part of the cost of the asset. This is in accordance with the International Accounting Standards (IAS 23) which state that borrowing costs directly attributable to the acquisition or construction of a qualifying asset should be capitalized as part of the cost of that asset. The capitalization of borrowing costs is justified because these costs are incurred to finance the construction of the asset and they would not have been incurred had the asset not been constructed. Capitalizing borrowing costs can also result in a more accurate reflection of the true cost of the asset.

How Should Borrowing Costs Relating to an Asset Being Constructed