IAS 23 — Revenue recognised over time

Date recorded:

IAS 23 Borrowing Costs—Revenue recognised over time (Agenda Paper 4)


The Committee received a submission about the capitalisation of borrowing costs in relation to the construction of a residential multi-unit real estate development for entities which recognise revenue over time for the sale of individual units in the development.

The submission sets out a fact pattern. A real estate developer (entity) constructs the building and sells the individual units in the building to customers, which the entity borrows funds specifically for the purpose of constructing the building and incurs borrowing costs in connection with that borrowing. Before construction begins, the entity signs contracts with customers for the sale of some of the units in the building (sold units) and the entity markets for sale the remaining units in the building (unsold units). The entity recognises revenue over time in accordance with IFRS 15:35(c). The submission asks whether the entity has a qualifying asset as defined in IAS 23 Borrowing Costs and, therefore, capitalises any directly attributable borrowing costs.

Staff analysis

The staff analysed that the assets the entity might recognise are receivables, contract assets and inventory. None of these are a qualifying asset applying IAS 23, i.e. "...an asset that necessarily takes a substantial period of time to get ready for its intended use or sale". Furthermore, the staff analysed that the unsold units are ready for their intended sale in their current condition and would not necessarily take a substantial period of time to get ready for such sale, and would not meet the definition of a qualifying asset. Accordingly, the entity does not capitalise borrowing costs in relation to the construction of the building.

Staff recommendation

The staff did not recommend to add this matter to its standard-setting agenda since the staff think IAS 23 provides an adequate basis for such accounting treatment. Instead, the staff recommended that the Committee publish an agenda decision that outlines the application of IAS 23.


Most of the Committee members agreed with staff analysis and conclusion. A committee member stated that the customers are not specified in this case and so it is difficult to capitalise the borrowing cost.

A number of Committee members had expressed their concern over the 'marketing activities undertaken in order to make the intended sale of the property units' as written in the Agenda Decision. One Committee member emphasized that the marketing activities must be substantive. Most of the Committee members said that marketing activities are not relevant and confusing in the analysis because the focus of the question is that the intention is to sell under a contract that will give rise to revenue which is recognised over time. The Chair had clarified with the Committee members and agreed that even if the entity intended to sell the property units but it might take years to actually sell, the analysis above will not change.

Another committee member raised that the concern that it is not about marketing activities, but the incomplete unit of property because the qualifying asset in IAS 23 is always 'an asset that necessarily takes a substantial period of time to get ready for its intended use or sale'.

The Committee decided, by a majority of votes, not to add this matter to the Committee's standard-setting agenda but to publish an Agenda Decision.

The Committee decided, by a majority of votes, to adopt the wording in the Agenda Decision after making the changes on (i) highlighting the importance of "over-time revenue accounting" because of a very different accounting result for "point in time revenue accounting"; (ii) adding the management intention to sale have to be substantive; (iii) taking out point (d) in the tentative Agenda Decision because that was not answering any particular question and (iv) repeating on point (b) in page 14 of the staff paper that the property unit is ready for its intended sale in its current condition and the sale results in transfer of control of property to the customer.

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