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IAS 23 – Borrowing Costs (detailed review)


This standard prescribes the accounting treatment of borrowing cost, the circumstance in which the borrowing cost will be capitalized and when it will be recognized as expense.


The requirements of this Standard are applicable to deal with the accounting treatment of borrowing cost. However this standard does not applies to the actual or imputed cost related to the equity instruments.


1. Borrowing Cost:
It is interest cost and any other cost which arises, in order to borrow the funds. It includes:

  • Interest
  • Discount on issuance of loan note or debenture
  • Premium on redemption of loan note debenture
  • Any interest cost included in finance lease
  • Interest on overdraft
  • Any Issuance cost on loan instruments

2. Qualifying Asset:
An asset, that essentially takes a long or substantial time period to get ready for sale or intended use by the entity.
For example Inventory, Investment property, or any self constructed asset which takes a long time period to get complete.

  • Qualifying asset does not include assets which are ready for sale or use, at the time when these are acquired and the assets which are completed in the short interval.

Recognition of Borrowing Cost

The borrowing cost which is incurred for the construction or acquisition of a Qualifying Asset will be capitalized as part of cost of such asset. Any other borrowing cost will be treated as expense and will be charged to the statement of profit and loss.

  • The borrowing cost which relates to a qualifying asset is called ‘Eligible Borrowing Cost’ as it becomes eligible to be capitalized in the cost of asset.
  • The borrowing cost related to qualifying asset, which becomes eligible to be capitalized, is that borrowing cost that can be avoided if that asset is not produced or constructed.
  • The cost of qualifying asset including the capitalized borrowing cost should not exceed the Recoverable value of the asset, if exceeded then the asset will be written down to its recoverable value as per the requirements of IAS 36.

Measurement of Eligible Borrowing Cost to be Capitalized

The measurement of the borrowing cost related to the qualifying asset which is capitalize as part of the cost of such asset, depends upon:

1. Specific Loan/Fund:

The loan which is specifically borrowed for the construction or acquisition of a qualifying asset only is called specific loan. In such situation the borrowing cost eligible for capitalization will be calculated as, actual borrowing cost incurred on the asset less any income from temporary investment of funds during the period of construction.

2. General Loan/Funds:

The loan which is borrowed for the qualifying asset and general use in business both is called general loan. In such situation the borrowing cost eligible for capitalization will be calculated as, the expenditure on the qualifying asset during the accounting period will be multiplied with weighted average borrowing cost percentage of the entity in respect of the loans which were outstanding during the accounting period.

Commencement of Capitalization:

The capitalization of borrowing cost will start right from the date when entity will meet all the following conditions:

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  • The expenditure on the asset has been started;
  • Borrowing cost is being incurred;
  • The activities necessary to complete the asset are in progress.
  • The expenditure on a qualifying asset includes the expenditure in the form of payments for the material, associated labor cost and related overheads.
  • The activities necessary to complete the asset includes not only the physical construction of the asset, it also encompasses any technical working, administrative work and taking planning permission from related authorities before the start of physical construction work.
  • The borrowing cost can only be capitalized, during the period when activities necessary to complete the asset are in progress. And the borrowing cost during the period when activities necessary to complete the asset are interrupted will not be capitalized and such borrowing cost will be charged to the statement of profit & loss as an expense.

Suspension of Capitalization of Borrowing Cost:

If during the period of construction, the activities necessary to complete the asset are interrupted or suspended due to particular reasons, the borrowing cost of such period will be accounted for as follows:

  • If the period of interruption is material, the borrowing cost of such period will not be capitalized and will be charged to statement of profit and loss as an expense.
  • If the period of interruption is immaterial or temporary such as (Material shortage or labor strikes), then entity may continue to capitalize the borrowing cost during such period.

Cessation of Capitalization:

  • The capitalization of the borrowing cost will cease, when activities necessary to complete the asset are finished i.e. the completion of the physical structure of the qualifying asset, although some administrative or decorative work may still continue.
  • If a qualifying asset contains different component parts such as (Industrial plant which has several processes) and the entity will complete the construction of such qualifying asset by constructing each part or component on individual basis in a sequence, where each part or component can be used individually while the construction work is in progress on other parts or components, the capitalization of the borrowing cost will cease when activities necessary to complete that part for its intended use or sale has been finished.


The standard requires the entity to disclose the following:

  • Borrowing cost capitalized during the accounting period;
  • The weighted average borrowing cost rate or percentage used to determine the borrowing costs eligible for capitalization.

Application Examples:

Example 1:

AB Ltd. started the construction of an asset on 1 January 2020 with a loan of $40,000 borrowed at an interest rate of 9% per annum.
The loan was used on the asset as follows:

Why DNA Evidence Can Be Unreliable

The analysis of crime-scene DNA has revolutionized forensic science and reversed hundreds of wrongful convictions. With only a smudge of cells left on a weapon or a victim, investigators can combine DNA with other evidence — like eyewitness accounts — to narrow the suspect pool and nail the right perpetrator.

But popular TV shows like the long-running “CSI: Crime Scene Investigation” (and its spin-offs like “CSI: Miami”) can greatly exaggerate the effectiveness of forensic science, warping the public perception of what DNA evidence can and cannot tell us about who really committed a crime. In these shows, the science is infallible, the investigators are ingenious, and the criminal is always locked up in less than an hour.

The “CSI effect” is strong enough that many jurors in criminal trials — and even some judges — have to be convinced that DNA found at a crime scene does not automatically mean that the person matching that DNA is guilty.

That’s what Christopher Phillips, a researcher in forensic genetics at the University of Santiago de Compostela in Spain is trying to do. He is one of the consulting experts on an eye-opening new guide called “Making Sense of Forensic Genetics” published with the help of the U.K.-based nonprofit Sense About Science. The guide debunks some of the most dangerous myths about DNA evidence. Here are two.

Myth 1: DNA Is Infallible.

One of the most pervasive fictions, says Phillips, is that DNA found at a crime scene is de facto proof of guilt. That may have been true(ish) 20 years ago when DNA could only be reliably extracted from fresh blood stains, semen and other large tissue samples. But today’s forensic technology is so sensitive and precise that viable DNA can be pulled from just a few individual cells.

This so-called “touch DNA” or “trace DNA” has given investigators much more evidence to analyze, but it comes at a cost. We leave traces of our DNA everywhere, in dead skin cells, stray spit and strands of hair. The hardest job for investigators is to differentiate DNA that belongs to the criminal and DNA that randomly finds its way to the crime scene.

“There’s something called ‘accidental transfer’ or ‘secondary transfer,'” says Phillips. “The DNA on a weapon might come from the person who actually touched the object or the person who shook hands with the person who touched the object.”

In 2020, forensic researchers asked pairs of people to shake hands for two minutes and then handle separate knives. In 85 percent of the cases, DNA from both people was found on the knives, and 20 percent of the cases showed more DNA from the secondary source.

Sometimes it’s the forensic investigators themselves who accidentally contaminate the evidence. The guide shares the bizarre example of Adam Scott, a man wrongfully convicted of rape when his DNA was found in a genital swab. Scott’s DNA was a perfect match — a one in a billion probability — and it was the only evidence used to convict him, despite Scott’s claim that he was more than 200 miles (322 kilometers) away the night of the incident.

Scott spent five months in custody before the truth came out. A technician in the crime lab had reused a plastic plate that contained a sample of Scott’s saliva from an unrelated “spitting incident.” Phone records also corroborated Scott’s claim that he was in his hometown at the time of the attack.

Phillips says that judges and prosecutors have learned from examples like the Scott case that DNA evidence alone is not enough to convict. With even a chance of contamination or secondary transfer, there must be other forms of corroborating evidence — like fiber samples, eyewitness accounts or fingerprints — that put the DNA results into context.

Myth 2: DNA Can Reconstruct Facial Features.

Another myth surrounding DNA evidence is that it can be used to faithfully reconstruct the facial characteristics of a suspect. Phillips explains that the technology — called DNA phenotyping — does exist, but it’s limited to sex, skin color, hair color and just a probability of eye color. But DNA doesn’t give investigators a clue about the shape of the face, nose size or other external characteristics. It can, however, be particularly useful in narrowing down a pool of suspects.

A remarkable example of DNA phenotyping at work was a high-profile cold case that Phillips helped to solve in 2020. Eva Blanco Puig was a Spanish teenager who was raped and murdered in 1997. In the original investigation, a judge rejected the prosecutor’s request to collect DNA samples from a random selection of men in Blanco’s small town.

Nearly two decades later, Phillips was asked to run DNA phenotyping on DNA samples recovered from the victim’s body.

“We performed an ancestry and pigmentation analysis and the results came back that it was 180 times more likely that the suspect was North African than European,” says Phillips.

This time the judge allowed investigators to ask for volunteers from the community of Northern African descent to conduct what’s known as “familial searching.” The somewhat controversial screening method helps investigators narrow their search further by making partial matches with relatives of the suspect.

“Three hundred people came forward,” says Phillips, “and two people were very closely related to the DNA they found on Blanco. It was clear that they were the brothers of the assailant,” who police tracked down in the south of France. “That’s an example of a new form of DNA analysis that completely unlocked the case.”

3 Reasons Why Countries Devalue Their Currency

With a potential outbreak of a trade war between China and the US, talks of the Chinese using currency devaluation as a strategy have been rumbling. However, the volatility and risks involved may not make it worth it this time, as China has made recent efforts to stabilize and globalize the Yuan.

In the past, the Chinese denied it, but the second largest economy in the world has time and time again been accused of devaluing its currency in order to advantage its own economy, especially by Donald Trump. The ironic thing is that for many years, the United States government had been pressuring the Chinese to devalue the Yuan, arguing that it gave them an unfair advantage in international trade and kept their prices for capital and labor artificially low.

Ever since world currencies abandoned the gold standard and allowed their exchange rates to float freely against each other, there have been many currency devaluation events that have hurt not only the citizens of the country involved but have also rippled across the globe. If the fallout can be so widespread, why do countries devalue their currency?

Key Takeaways

  • Currency devaluation involves taking measures to strategically lower the purchasing power of a nation’s own currency.
  • Countries may pursue such a strategy to gain a competitive edge in global trade and reduce sovereign debt burdens.
  • Devaluation, however, can have unintended consequences that are self-defeating.

Devaluing Currency

It may seem counter-intuitive, but a strong currency is not necessarily in a nation’s best interests. A weak domestic currency makes a nation’s exports more competitive in global markets, and simultaneously makes imports more expensive. Higher export volumes spur economic growth, while pricey imports also have a similar effect because consumers opt for local alternatives to imported products. This improvement in the terms of trade generally translates into a lower current account deficit (or a greater current account surplus), higher employment, and faster GDP growth. The stimulative monetary policies that usually result in a weak currency also have a positive impact on the nation’s capital and housing markets, which in turn boosts domestic consumption through the wealth effect.

It is worth noting that a strategic currency devaluation does not always work, and moreover may lead to a ‘currency war’ between nations. Competitive devaluation is a specific scenario in which one nation matches an abrupt national currency devaluation with another currency devaluation. In other words, one nation is matched by a currency devaluation of another. This occurs more frequently when both currencies have managed exchange-rate regimes rather than market-determined floating exchange rates. Even if a currency war does not break out, a country should be wary about the negatives of currency devaluation. Currency devaluation may lower productivity, since imports of capital equipment and machinery may become too expensive. Devaluation also significantly reduces the overseas purchasing power of a nation’s citizens.

Below, we look at the three top reasons why a country would pursue a policy of devaluation:

1. To Boost Exports

On a world market, goods from one country must compete with those from all other countries. Car makers in America must compete with car makers in Europe and Japan. If the value of the euro decreases against the dollar, the price of the cars sold by European manufacturers in America, in dollars, will be effectively less expensive than they were before. On the other hand, a more valuable currency make exports relatively more expensive for purchase in foreign markets.

In other words, exporters become more competitive in a global market. Exports are encouraged while imports are discouraged. There should be some caution, however, for two reasons. First, as the demand for a country’s exported goods increases worldwide, the price will begin to rise, normalizing the initial effect of the devaluation. The second is that as other countries see this effect at work, they will be incentivized to devalue their own currencies in kind in a so-called “race to the bottom.” This can lead to tit for tat currency wars and lead to unchecked inflation.

2. To Shrink Trade Deficits

Exports will increase and imports will decrease due to exports becoming cheaper and imports more expensive. This favors an improved balance of payments as exports increase and imports decrease, shrinking trade deficits. Persistent deficits are not uncommon today, with the United States and many other nations running persistent imbalances year after year. Economic theory, however, states that ongoing deficits are unsustainable in the long run and can lead to dangerous levels of debt which can cripple an economy. Devaluing the home currency can help correct balance of payments and reduce these deficits.

There is a potential downside to this rationale, however. Devaluation also increases the debt burden of foreign-denominated loans when priced in the home currency. This is a big problem for a developing country like India or Argentina which hold lots of dollar- and euro-denominated debt. These foreign debts become more difficult to service, reducing confidence among the people in their domestic currency.

3. To Reduce Sovereign Debt Burdens

A government may be incentivized to encourage a weak currency policy if it has a lot of government-issued sovereign debt to service on a regular basis. If debt payments are fixed, a weaker currency makes these payments effectively less expensive over time.

Take for example a government who has to pay $1 million each month in interest payments on its outstanding debts. But if that same $1 million of notional payments becomes less valuable, it will be easier to cover that interest. In our example, if the domestic currency is devalued to half of its initial value, the $1 million debt payment will only be worth $500,000 now.

Again, this tactic should be used with caution. As most countries around the globe have some debt outstanding in one form or another, a race to the bottom currency war could be initiated. This tactic will also fail if the country in question holds a large number of foreign bonds since it will make those interest payments relatively more costly.

The Bottom Line

Currency devaluations can be used by countries to achieve economic policy. Having a weaker currency relative to the rest of the world can help boost exports, shrink trade deficits and reduce the cost of interest payments on its outstanding government debts. There are, however, some negative effects of devaluations. They create uncertainty in global markets that can cause asset markets to fall or spur recessions. Countries might be tempted to enter a tit for tat currency war, devaluing their own currency back and forth in a race to the bottom. This can be a very dangerous and vicious cycle leading to much more harm than good.

Devaluing a currency, however, does not always lead to its intended benefits. Brazil is a case in point. The Brazilian real has plunged substantially since 2020, but the steep currency devaluation has been unable to offset other problems such as plunging crude oil and commodity prices, and a widening corruption scandal. As a result, the Brazilian economy has experienced sluggish growth.

8 Reasons Why Marijuana Should Be Legalized

Justin Sullivan / Getty Images

  • Ph.D., Religion and Society, Edith Cowan University
  • M.A., Humanities, California State University – Dominguez Hills
  • B.A., Liberal Arts, Excelsior College

Several states have legalized marijuana in recent years, either for medicinal use, recreational use or both. But possession, sale or use of the drug still is considered a crime at the federal level and most states.

Regardless of one’s position on the explanations for marijuana prohibition, there are two sides to the debate. These are the arguments in favor of legalization.

There are always reasons why laws exist. While some advocates for the status quo claim that marijuana laws prevent people from harming themselves, the most common rationale is that they prevent people from harming themselves and from causing harm to the larger culture.

But laws against self-harm always stand on shaky ground—predicated, as they are, on the idea that the government knows what’s good for you better than you do, and no good ever comes from making governments the guardians of culture.

Racially Discriminatory

The burden of proof for marijuana prohibition advocates would be high enough if marijuana laws were enforced in a racially neutral manner, but—this should come as no surprise to anyone familiar with our country’s long history of racial profiling—they are most definitely not.

According to the American Civil Liberties Union, (ACLU) blacks and whites use marijuana at roughly the same rates, yet blacks are nearly four times more likely to be arrested for a pot-related crime.

Enforcement is Prohibitively Expensive

In 2005, Milton Friedman and a group of over 500 other economists advocated for marijuana legalization on the basis that prohibition directly costs more than $7.7 billion per year.

Enforcement is Unnecessarily Cruel

You don’t have to look very hard to find examples of lives needlessly destroyed by marijuana prohibition laws. The government arrests about 700,000 Americans—more than the population of Wyoming—for marijuana possession every year. These new “convicts” are driven from their jobs and families and pushed into a prison system that turns first-time offenders into hardened criminals.

Impedes Criminal Justice Goals

Just as alcohol prohibition essentially created the American Mafia, marijuana prohibition has created an underground economy where crimes unrelated to marijuana, but connected to people who sell and use it, go unreported. End result: Real crimes become harder to solve.

Cannot Be Consistently Enforced

Every year, an estimated 2.4 million people use marijuana for the first time. Most will never be arrested for it. A small percentage, usually low-income people of color, arbitrarily will.

If the objective of marijuana prohibition laws is to actually prevent marijuana use rather than driving it underground, then the policy is, despite its astronomical cost, an utter failure from a pure law enforcement point of view.

Taxing It Can Be Profitable

A 2020 Fraser Institute study found that legalizing and taxing marijuana could produce considerable revenue for British Columbia. Economist Stephen T. Easton estimated the annual amount at $2 billion.

Alcohol and Tobacco Are Far More Harmful

The case for tobacco prohibition is actually much stronger than the case for marijuana prohibition since tobacco has provably harmful effects and no benefits.

Alcohol prohibition has, of course, already been tried. And, judging by the history of the war on drugs, legislators have apparently learned nothing from this failed experiment.

Further, it is impossible to overdose on marijuana since a pot smoker would have to consume 20,000 to 40,000 times the amount of THC in a single joint to produce a lethal dose.

Marijuana is also far less addictive than other drugs. According to CNN medical correspondent Dr. Sanjay Gupta, the numbers for adult dependence are:

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