Statement of Cash Flows: Interest that is capitalised
The Exposure Draft on Annual Improvements to IFRSs 2010 -2012 cycle (ED/2012/1) published in May 2012 includes the IASB's proposal to:
- amend the requirements in paragraphs 16 and 33 of IAS 7 and
- add paragraph 33A to IAS 7.
This amendment proposes to clarify that the classification of payments of interest that is capitalised shall follow the same classification as the underlying asset into which those payments were capitalised. This modification also covers the classification of payments of interest that have been capitalised into the cost of operating assets (such as inventory), which should be classified as part of an entity's cash flows from operating activities.
Paragraph 16 of IAS 7 might be interpreted to require interest paid that is capitalised to be classified as an investing cash flow. However, this might seem inconsistent with paragraphs 32 and 33 of IAS 7, which appear to require interest paid to be classified only as an operating or a financing cash flow.
The proposed amendment:
- proposes that the example guidance in paragraph 16(a) of cash flows arising from investing activities should explicitly include interest paid that is capitalised into the cost of property, plant and equipment; and
- clarifies in paragraph 33 (and in the new paragraph 33A) that interest paid that is capitalised in accordance with IAS 23 should be classified in conformity with the classification of the underlying asset to which those payments were capitalised.