Under Ind AS 23, borrowing costs that are directly attributable to the acquisition, construction, or production of a qualifying asset are required to be capitalized as part of the cost of that asset. A qualifying asset is an asset that takes a substantial period of time to get ready for its intended use or sale.
While the term “substantial period” is not specifically defined, the standard indicates that borrowing costs should be capitalized during the period that is necessary to complete the activities required to prepare the asset for its intended use or sale. The borrowing costs to be capitalized cease when substantially all the activities necessary to prepare the qualifying asset for its intended use or sale are complete.
Generally, a period of 12 months is considered as a substantial period unless a shorter or longer period can be justified based on facts and circumstances of the case. Borrowing costs are capitalized in the books of accounts with the qualifying assets when it is certain that it will have future economic benefits.
