Explain the journal entries related to IAS 23 Borrowing Costs.

Question

Accepted Answer

Explanation of journal entries for borrowing costs as per IAS 16.

Borrowing costs include interest on bank loans, overdrafts, and other short-term and long-term borrowings.
Borrowing costs that are directly attributable to the acquisition, construction, or production of a qualifying asset are capitalized.
The capitalized borrowing costs are added to the cost of the asset and depreciated over the useful life of the asset.
The journal entry for capitalized borrowing costs includes debiting the asset account and crediting the borrowing cost account.
If borrowing costs are not directly attributable to the qualifying asset, they are expensed in the period in which they are incurred.
The journal entry for expensed borrowing costs includes debiting the borrowing cost account and crediting the bank account or cash account.

Interview Questions Asked to Accounting and Finance Executive at Other Companies