📌 The Core Principle
IAS 23 mandates that borrowing costs that are directly attributable to acquiring, constructing, or producing a qualifying asset must be capitalized as part of the cost of that asset. All other borrowing costs are expensed.
🏗️ What is a Qualifying Asset?
A qualifying asset is one that necessarily takes a substantial period of time to get ready for its intended use or sale. In UAE practice, this typically includes:
- Commercial and residential real estate developments
- Large manufacturing facilities
- Power and infrastructure projects
- Custom ERP system implementations (sometimes)
💰 Calculating Capitalizable Borrowing Costs
For specific borrowings: actual borrowing costs minus investment income on temporary surplus funds. For general borrowings: apply a capitalization rate (weighted average cost of all general borrowings) to expenditure on the qualifying asset.
⚡ Key Judgments in UAE Projects
- Determining when capitalization commences (active development begun)
- Suspension periods (Ramadan construction slowdowns may not qualify)
- Cessation (when asset is ready for use)
- Intercompany loans: arm's length vs. concessionary rates
About the Author
DCS Advisory
Senior Advisor · Diraya Consulting & Solutions
A seasoned professional specialising in UAE taxation, IFRS standards, and business advisory services. Our team brings deep expertise in helping businesses navigate complex regulatory and financial landscapes across the UAE and beyond.
