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

Hi Allan

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

The change to IAS23 will come into force on Jan 2009. So far that is only allowed alternative, the benchmark tre
atment is to expense.

The exchange differences on foreign currency should be included to assets under construction and therefore capitalised. After capitalisation of qualifying asset any exchange differences that may arise should expensed to P&L.




IAS 23.6 (e) continues to allow 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. The same has not changed even under the improvements project.

From a practical aspect, you would need to determine how much of the exchange difference can be capitalised.This would be to the extent that the exchange difference represents an adjustment to the interest cost of the borrowings. You would need to find another local currency loan which could have been taken at the same time for the same purpose and based on that, work out how much of the borrowing cost can be capitalised.


Foreign exchange is considered to be a part of financing cost.  Therefore Under allowed treatment of borrowing cost, foreign exchange differences should be capitalized as borrowing cost.