SIC-2, "Consistency – Capitalisation of Borrowing Costs,"

SIC-2, "Consistency – Capitalisation of Borrowing Costs," was an interpretation issued by the Standing Interpretations Committee (SIC) of the International Accounting Standards Committee (IASC). The interpretation was aimed at providing guidance on the consistency of capitalizing borrowing costs. Here are the key aspects of SIC-2:

1. Objective: SIC-2 was issued to address the treatment of borrowing costs and to ensure consistency in their capitalization in accordance with IAS 23, "Borrowing Costs."

2. Capitalization of Borrowing Costs: The interpretation provided guidance on when it is appropriate to capitalize borrowing costs as part of the cost of acquiring, constructing, or producing a qualifying asset, as defined in IAS 23.

3. Qualifying Assets: A qualifying asset was defined as an asset that necessarily takes a substantial period of time to get ready for its intended use or sale. This could include assets like buildings, plants, and major equipment.

4. Recognition Criteria: SIC-2 clarified that borrowing costs should only be capitalized during the period in which activities necessary to prepare the asset for its intended use or sale are in progress.

5. Consistency in Application: The interpretation required consistent application of the capitalization criteria. This meant that an entity had to follow a consistent policy for capitalizing borrowing costs on all similar qualifying assets.

6. Disclosure: SIC-2 required entities to disclose their accounting policy for borrowing costs, particularly whether they capitalized borrowing costs or charged them as an expense in the period in which they were incurred.

7. Supersession and Current Practice: It's important to note that SIC-2, like other SIC interpretations, was designed to clarify, interpret, or supplement the International Accounting Standards (IAS) in place at the time. However, many of these interpretations have been superseded by later standards or amendments. In this case, IAS 23 was revised in 2007, and the revised standard requires the capitalization of borrowing costs directly attributable to the acquisition, construction, or production of a qualifying asset.

8. Transition Provisions: At the time of its issuance, SIC-2 provided guidance on how entities should transition to the new capitalization requirements, particularly if they had previously expensed borrowing costs.

In current practice, for the most up-to-date guidance, entities should refer to the latest version of IAS 23, "Borrowing Costs," which has incorporated and superseded the guidance previously found in SIC-2. The revised IAS 23 provides a comprehensive framework for the treatment of borrowing costs in relation to qualifying assets.

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