IAS 23 — Borrowing costs on land

Date recorded:

IAS 23 Borrowing Costs—Borrowing costs on land (Agenda Paper 3B)


The Committee received a submission asking whether an entity ceases to capitalise borrowing costs in respect of expenditures incurred in developing land (land development expenditures) once it begins constructing the building on the land (View 1) or continues to capitalise borrowing costs in respect of the land development expenditures while it constructs the building (View 2).

The Committee has received responses from large accounting firms and other stakeholders and the majority of respondents said the prevalent accounting treatment applied is View 2. Some respondents said the assessment depends on whether the entity recognises the land and building separately or as one asset. Also, if the entity is developing the land and building for sale, whether, applying IFRS 15 Revenue from Contracts with Customers, the entity (i) identifies one or two performance obligations; and (ii) recognises revenue over time or at a point of time.

The staff concluded that applying IAS 23:24, an entity considers whether the land is capable of being used for the intended purpose while construction continues on the building. If the land is not capable of being used for its intended purpose while construction continues on the building, the entity considers the land and building together in assessing when to cease capitalising borrowing costs on the land development expenditures. In this situation, the staff think the land would not be ready for its intended use or sale until substantially all the activities necessary to prepare both the land and the building for that intended use or sale are complete.

The staff consider the requirements in IAS 23 provide an adequate basis for an entity to determine when to cease capitalising borrowing costs on land development expenditures.

The staff do not recommend to add this matter to the Committee’s standard-setting agenda. Instead, the staff recommend to publish an Agenda Decision in relation to the application of the requirements in IAS 23.


Before the discussion, the staff clarified that the term used in the staff paper to describe expenditures that are incurred to develop the land as "land development expenditures" should be amended to "land expenditures". This is because the staff did not intend to imply that an entity can only capitalise the expenditure in developing the land but not the expenditure in acquiring the land.

In the meeting, many of the Committee members agreed with the staff analysis. Committee members discussed paragraphs 30 to 32 of the staff paper, i.e. whether the identification of performance obligations from applying IFRS 15 (single performance obligation or two performance obligations with one being for transfer of the land and another one for transfer of the building) would affect the timing of cessation of the capitalisation of borrowing costs. Some Committee members consider this is a separate issue and should not be discussed in the Agenda Decision at the moment.


The Committee decided, by a majority vote, that an Interpretation is not required and that it would publish for public comment a tentative Agenda Decision to that effect. The draft Agenda Decision included in the staff paper will be amended by changing the term "land development expenditures" to "land expenditures".

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