If the entity’s policy is to capitalise borrowing costs and obtains a foreign loan probably taking advantage of the lower interest rates, any exchange differences should be capitalised as will during the period of construction of the qualifying asset.



As per the amended IAS 23, all borrowing costs on qualifying assets should be capitalised (no option to expense).


Does exchange differences on foreign currency loans qualify as borrowing costs to be capitalised?

Best regards

Under the allowed alternative treatment under IAS 23 on Borrowing Costs, we can exchange differences arising from foreign currency borrowings to be capitalised as borrowing costs to the extent that they are regarded as an adjustment to interest costs. This applies to foreign exchange differences on loans obtained for the purpose of acquiring a qualifying asset. The foreign exchange differences will only be capitalised during the period of the acquisition of the qualifying asset. The criteria under which we capitalise the borrowing costs under IAS 23 applies.

Hi Allan
To my understanding any positive/negative FX difference is expensed directly to the P&L. 



I understand what IAS23 alternative treatment guidelines are, but on practical basis this becomes extremely hard to follow up. My main concern using this approach is with the bookkeeping, follows up and analyses of the figures.
If one one capitalizing the FX difference from borrowing costs it needs to be trackable in the sense of being able to discriminate the impact of those variances in the profitability line and performance of the different assets of your portfolio.
At the same time, if one company has a credit line with many different credit requests every week and with different pricing behind, the FX difference capitalization methodology will make very hard on the analyse phase. If a company decides to do so then the challenge is how to allocate that specific variance to the correspondent borrowing line individually and to which product is that related.
At the same time, if the asset is a loan given locally with fix rate, for example, you’ll have an stable line of income with a certain APR but a fluctuating borrowing costs line.
The bottom line is that we also need to think about the consequences on the later control of the accounting policies we apply and how we’ll follow up on those.