ASBE No. 17
Active
Borrowing Costs
Borrowing Costs is part of the Chinese Accounting Standards for Business Enterprises (ASBE).
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Conceptual Framework Linkage
Capitalising the cost of financing a qualifying asset
ASBE No. 17 governs the RECOGNITION and MEASUREMENT of BORROWING COSTS – interest and OTHER costs an ENTERPRISE incurs in CONNECTION with the BORROWING of FUNDS – REQUIRING CAPITALISATION of BORROWING costs DIRECTLY attributable to the ACQUISITION, construction, or PRODUCTION of a QUALIFYING asset, CONSISTENT with IAS 23's OWN current (post-2007) approach internationally.
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Scope – What Counts as a Borrowing Cost
Interest, discount/premium amortisation, ancillary costs, and certain exchange differences
BORROWING costs WITHIN this Standard's SCOPE include INTEREST expense, AMORTISATION of DISCOUNTS or PREMIUMS on BORROWINGS, ANCILLARY costs INCURRED in CONNECTION with ARRANGING borrowings, and EXCHANGE differences on FOREIGN currency borrowings TO THE EXTENT they REPRESENT an ADJUSTMENT to INTEREST costs.
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Qualifying Assets
Assets requiring a substantial period to prepare for use or sale
A "QUALIFYING ASSET" is an ASSET that NECESSARILY requires a SUBSTANTIAL period of TIME to get READY for its INTENDED use or SALE – TYPICALLY fixed ASSETS under construction, INVESTMENT property under CONSTRUCTION, or LARGE inventories REQUIRING an EXTENDED production PROCESS.
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Mandatory Capitalisation – No Expensing Option
Capitalisation is required, not elective
BORROWING costs DIRECTLY attributable to a QUALIFYING asset MUST be CAPITALISED as PART of the asset's COST – THERE is NO option to SIMPLY expense SUCH costs as INCURRED, CONSISTENT with IAS 23's OWN elimination of its FORMER expensing option (WHICH was REMOVED in a 2007 revision INTERNATIONALLY, ALIGNING the two frameworks).
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Conditions for Commencing Capitalisation
All three conditions must be met simultaneously
Asset expenditures have been incurredBorrowing costs have been incurredActivities necessary to prepare the asset for its intended use or sale are in progress
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Specific Borrowings – Actual Interest, Less Investment Income
Netting off any temporary investment returns
WHERE FUNDS are BORROWED SPECIFICALLY for the PURPOSE of OBTAINING a QUALIFYING asset, the AMOUNT of BORROWING costs ELIGIBLE for CAPITALISATION is the ACTUAL borrowing COSTS incurred on THAT specific BORROWING DURING the period, LESS any INVESTMENT income EARNED on the TEMPORARY investment of ANY unused BORROWED funds.
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General Borrowings – the Weighted Average Capitalisation Rate
Applying a blended rate to the excess expenditure
WHERE an ENTERPRISE uses GENERAL (RATHER than SPECIFIC) borrowings to FUND a QUALIFYING asset, the AMOUNT to CAPITALISE is DETERMINED by APPLYING a WEIGHTED AVERAGE capitalisation RATE (based on the ENTERPRISE'S general BORROWINGS outstanding DURING the period) to the PORTION of asset EXPENDITURES that EXCEEDS any SPECIFIC borrowings DIRECTLY related to THAT asset.
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Suspension and Cessation of Capitalisation
Pausing during extended interruptions, stopping once the asset is ready
CAPITALISATION is SUSPENDED DURING extended PERIODS in WHICH active DEVELOPMENT of the QUALIFYING asset is INTERRUPTED, and CEASES ENTIRELY once the ASSET is SUBSTANTIALLY ready for its INTENDED use or SALE – AT which POINT any FURTHER borrowing costs are SIMPLY expensed as INCURRED.
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Worked Example – Capitalising Interest on a Specific Borrowing
Netting off temporary investment income
Example: A dedicated construction loan
A company borrows RMB 100,000,000 specifically to fund the construction of a new factory, incurring RMB 6,000,000 of interest during the year. Unused funds were temporarily invested, earning RMB 400,000 of investment income.
The company CAPITALISES RMB 6,000,000 − RMB 400,000 = RMB 5,600,000 as PART of the factory's COST, with the REMAINDER of any OTHER unrelated interest expensed AS incurred.
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Worked Example – Applying the Weighted Average Rate to General Borrowings
Capitalising a blended rate on the excess expenditure
Example: Funding a qualifying asset from a general borrowing pool
A company spends RMB 50,000,000 on a qualifying asset during the year, with no specific borrowing attached. The company's weighted average capitalisation rate on its general borrowings is 5%.
The company CAPITALISES RMB 50,000,000 × 5% = RMB 2,500,000 of borrowing COSTS as PART of the asset's COST, DETERMINED using the WEIGHTED AVERAGE rate ACROSS its GENERAL borrowing POOL.
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Disclosure Requirements
What ASBE No. 17 requires
Amount of borrowing costs capitalised during the periodCapitalisation rate used to determine borrowing costs eligible for capitalisation on general borrowings
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Critical Judgments & Estimates
Where judgement matters most
SIGNIFICANT JUDGEMENTS
Whether an asset genuinely qualifies as requiring a substantial period to prepare for useWhen capitalisation should be suspended or ceased
SIGNIFICANT ESTIMATES
Weighted average capitalisation rate for general borrowings
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Relationship to IAS 23
Comparison – ASBE 17 vs IAS 23
FeatureASBE 17IAS 23
Capitalisation requirementMANDATORY for qualifying assetsMANDATORY for qualifying assets – converged
Weighted average rate for general borrowingsRequiredRequired – converged
A GENUINELY thoroughly CONVERGED standard – the MANDATORY capitalisation APPROACH mirrors IAS 23's OWN post-2007 international POSITION closely.
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Statement Mapping
Where every borrowing cost event lands
EventStatement(s) affectedNotes
Capitalised borrowing costsBSAdded to the qualifying asset's cost
Non-capitalised borrowing costsISExpensed as incurred, once capitalisation ceases
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Related Standards
Cross-reference map
StandardConnection
ASBE No. 4Fixed Assets – the primary asset category into which capitalised borrowing costs are typically added
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Quick-Reference Glossary
Qualifying asset
An asset that necessarily requires a substantial period of time to get ready for its intended use or sale.
Weighted average capitalisation rate
A blended interest rate, derived from an enterprise's general borrowings, applied to the portion of qualifying asset expenditure not funded by specific borrowings.
Financial statement key (Chinese GAAP / ASBE terminology)
BS Balance Sheet (资产负债表)
IS Income Statement (利润表)
SCOE Statement of Changes in Owners' Equity (所有者权益变动表)
CFS Cash Flow Statement (现金流量表)
History & Development
2006-02
ASBE No. 17 Borrowing Costs issued
Operative for periods beginning on or after 1 February 2007