IFRS – Capitalization of PP&E Borrowing Costs

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Under International Financial Reporting Standards (IFRS), borrowing costs are an additional aspect of Property, Plant and Equipment (PP&E) that is worthy of mention and review. This relates to the extent to which borrowing costs incurred to construct assets can be capitalized or expensed.

Prior to 2009, IFRS and Canadian GAAP were completely aligned – you had the choice to either expense or capitalize borrowing costs. However IFRS has removed the ability to expense.  Furthermore, a new requirement under IAS 23, is to capitalize borrowing costs in regards to “qualifying assets” effective for years commencing on or after January 1, 2009.

Even if your company’s current accounting policy requires that you capitalize borrowing costs it does not mean that your company is fully compliant with IFRS. You may still have issues, as there are other considerations. For instance, under IFRS, there are some differences in what can be capitalized, and there is more guidance under IFRS on how to capitalize borrowing costs and the processes that need to be followed. You will need to closely review the specific standard to ensure that you fully understand the impact.

I hope this helps. This is one of a series of blogs that is meant to convey information relating to Canada’s transition from Canadian GAAP to IFRS.

For further information, please refer to the ongoing series of IFRS blogs on the GFS Consulting web-site and please remember to contact your CGA or other accounting professional for further guidance.

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