SFRS(I) 1-23 prescribes the accounting treatment for borrowing costs. Its core principle is short and settled: borrowing costs that are directly attributable to the acquisition, construction, or production of a qualifying asset form part of the cost of that asset and are capitalised; all other borrowing costs are recognised as an expense. It is the Singapore equivalent of IAS 23 under IFRS, and is in substance IAS 23 as applied in Singapore.
Objective and scope
The objective is to prescribe the accounting treatment for borrowing costs. Borrowing costs are interest and other costs that an entity incurs in connection with the borrowing of funds, including interest calculated using the effective interest method and exchange differences on foreign currency borrowings to the extent they are regarded as an adjustment to interest costs.
The core rule
Borrowing costs directly attributable to the acquisition, construction, or production of a qualifying asset are capitalised as part of the cost of that asset. Other borrowing costs are recognised as an expense in the period incurred. So capitalisation is the exception, available only for qualifying assets and only for the borrowing costs directly attributable to them.
Qualifying asset
A qualifying asset is an asset that necessarily takes a substantial period of time to get ready for its intended use or sale. Examples include manufacturing plants, power generation facilities, intangible assets under development, investment properties under construction, and inventories that require a substantial period to bring to a saleable condition. This is particularly relevant in Singapore's property development and construction sectors, where projects under construction that take a substantial period can be qualifying assets. Assets ready for use when acquired, and assets routinely produced over a short period, are not qualifying assets.
The amount eligible for capitalisation
Where funds are borrowed specifically to obtain a qualifying asset, the amount eligible for capitalisation is the actual borrowing costs incurred on that borrowing during the period, less any investment income earned on the temporary investment of those borrowings.
Where funds are borrowed generally and used to obtain a qualifying asset, the amount eligible is determined by applying a capitalisation rate (the weighted average of the borrowing costs applicable to the entity's general borrowings) to the expenditures on the asset. The amount capitalised in a period must not exceed the borrowing costs incurred in that period.
Commencement, suspension, and cessation
Commencement begins when the entity first meets all of: it incurs expenditures for the asset; it incurs borrowing costs; and it undertakes activities necessary to prepare the asset for its intended use or sale. Suspension applies during extended periods in which active development is suspended. Cessation occurs when substantially all the activities necessary to prepare the asset are complete.
A worked example
A Singapore property developer borrows S$50,000,000 specifically to construct a building expected to take two years, at 5% interest:
| Borrowing cost treatment | S$ |
|---|---|
| Specific borrowing to construct building | 50,000,000 |
| Annual interest @ 5% | 2,500,000 |
| Less: income on temporary investment of undrawn funds | (illustrative deduction) |
| Capitalised into building cost (while construction active) | ≈ 2,500,000 / year |
| After substantial completion | Interest expensed, not capitalised |
While construction is active and all commencement conditions are met, the S$2,500,000 of annual interest is capitalised into the building's cost, reduced by any income earned on temporarily investing undrawn funds. Once the building is substantially complete, capitalisation ceases and subsequent interest is expensed. If general borrowings had funded the construction instead, the developer would apply the weighted average capitalisation rate of its general borrowings to the amounts spent.
How SFRS(I) 1-23 relates to IFRS
SFRS(I) 1-23 is identical to IAS 23 under IFRS — the same core principle (capitalise borrowing costs directly attributable to a qualifying asset, expense the rest), the same definition of a qualifying asset, the same treatment of specific and general borrowings with a capitalisation rate, and the same rules on commencement, suspension, and cessation. An entity familiar with IAS 23 will find SFRS(I) 1-23 to be the same standard.
Common pitfalls
Recurring issues include capitalising borrowing costs on assets that are not qualifying assets; failing to deduct investment income earned on the temporary investment of specific borrowings; not suspending capitalisation during extended interruptions; continuing to capitalise after the asset is substantially complete; and misapplying the capitalisation rate for general borrowings.
Why this is cleaner on a unified system
Determining which borrowing costs to capitalise requires linking specific and general borrowings to expenditure on qualifying assets over time — far more reliable when the loan records, project or asset costs, and the ledger sit in one connected system. When borrowing costs and asset expenditure flow through a single source of truth, applying the capitalisation rate, tracking commencement and cessation, and reflecting the capitalised amount in the asset's cost is more straightforward than reconciling separate loan and project schedules against the accounts.
This article is a detailed educational summary of SFRS(I) 1-23 in plain language. It is not a substitute for the full text of the standard. Accounting standards are amended from time to time; always verify the current, authoritative text of SFRS(I) 1-23 as issued by the Singapore Accounting Standards Council before relying on it, and consult a qualified professional accountant for application to your specific circumstances.