MPERS vs MFRS : Borrowing Cost

In this article, we share the main differences in the accounting requirements for borrowing costs under MFRS 123 and Section 25 of MPERS.

Borrowing Cost :

Borrowing costs are interest and other expenses incurred by an entity concerning the funds borrowed. Borrowing cost includes the following type of costs:

• Interest on bank borrowings (both short-term and long-term) as well as bank overdrafts.

• Amortisation of discounts or premiums relating to borrowings.

• Amortisation of ancillary costs incurred in connection with the arrangement of borrowings.

• Finance charges in relation to finance leases and service concession arrangements.

• Exchange differences from foreign currency borrowings, to the extent that they are regarded as an adjustment to interest costs.

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What is the accounting treatment for borrowing costs?

Section 25 of MPERS - Borrowing Cost

Recognise all borrowing costs as an expense in profit or loss in the period they are incurred. The option of capitalising borrowing costs on qualifying

assets are not allowed.

MFRS 123 - Borrowing cost

Borrowing costs that are directly related to a qualifying asset shall be capitalised as part of the cost of that asset.

Borrowing costs directly attributable to the acquisition, construction or production of a 'qualifying asset' (one that necessarily takes a substantial period of time to get ready for its intended use or sale) are included in the cost of the asset.

An entity shall cease capitalising borrowing costs when substantially all the activities necessary to prepare the qualifying asset for its intended use or sale are complete

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