Borrowing costs

IAS 23 Borrowing costs – no impact on cash flow of real estate developers

PETALING JAYA: The implementation of IAS 23 Borrowing costs is only a temporary difference in the recognition of borrowing costs and will have no impact on the cash flows of real estate developers, according to AmInvestment Bank which maintained a neutral appeal on the real estate sector.

While early rough estimates suggest the new approach will reduce FY20-21 net income by 10-20%, the research firm is not changing its earnings guidance at this point pending further information from developers. real estate.

“This way, we are keeping our valuations unchanged, regardless of the size of the revisions to our earnings forecasts going forward,” he said.

He added that developers are still evaluating the effect on the change in accounting policy, so it is still early to determine the actual impact on profits.

On March 20, 2019, the IFRS Interpretations Committee issued a decision on the agenda – Time Transfer of Constructed Property (IAS 23 Borrowing Costs).

Following the agenda decision, the Malaysian Accounting Standards Board decided that an entity should implement the change in its accounting policy as a result of the agenda decision on borrowing costs. of IAS 23 to the financial statements for annual periods beginning on or after July 1, 2020.

IAS 23 states that borrowing costs directly attributable to the acquisition, construction or production of a “qualifying asset” (one that necessarily takes a considerable period of time to prepare for its use or sale planned) are included in the cost of the asset. Other borrowing costs are expensed.

When a project is ready to be sold, the borrowing costs previously capitalized after launch must be unwound and recognized as an expense in the income statement including the borrowing costs previously capitalized for unsold units classified as inventory.