What are borrowing costs according to IAS 23?

Borrowing costs, as defined by IAS 23, are specifically costs that are directly attributable to the acquisition, construction, or production of a qualifying asset. Qualifying assets are those that necessarily take a substantial period of time to get ready for their intended use or sale. This includes assets like large buildings or complex machinery, where the financing costs must be capitalized as part of the cost of the asset itself during the period of construction or acquisition.

This recognition is particularly important because it reflects the actual costs incurred in bringing an asset to the state of readiness and ties the finance costs directly to the asset itself. It ensures that the financial statements accurately reflect the comprehensive costs involved in obtaining and preparing that asset for its intended use, which provides more reliable information to users of the financial statements.

The other options include costs related to general business operations, refinancing, and issuing shares, none of which fall under the specific treatment described in IAS 23. General business operations costs are not capitalized; refinancing costs refer to financial strategies rather than directly attributable costs for creating an asset, and costs associated with issuing shares pertain to equity financing, which is distinct from the capitalized borrowing costs for asset acquisition.