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.
E) None of the given answers.

Question

Quizplus · Accepted Answer

Borrowing costs related 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 International Accounting Standard (IAS) 23, which allows entities to capitalize borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset. Capitalized borrowing costs should be amortized over the period of construction of the asset.

How Should Borrowing Costs Relating to an Asset Being Constructed