IFRS for SMEs — U.S. GAAP Comparison Wiki

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Borrowing Costs

SME Par.IFRS SMEU.S. GAAP
Scope of this section
25.1 This section specifies the accounting for borrowing costs. Borrowing costs are interest and other costs that an entity incurs in connection with the borrowing of funds. Borrowing costs include:
  1. interest expense calculated using the effective interest method as described in Section 11 Basic Financial Instruments.
  2. finance charges in respect of finance leases recognised in accordance with Section 20 Leases.
  3. exchange differences arising from foreign currency borrowings to the extent that they are regarded as an adjustment to interest costs.
  
Recognition
25.2 An entity shall recognise all borrowing costs as an expense in profit or loss in the period in which they are incurred.

Unlike IFRS SMEs, borrowing costs directly attributable to the acquisition, construction, or production of a qualifying asset are capitalized as part of the cost of the asset.

All assets that require a time period to get ready for their intended use should include a capitalized amount of interest.  In many situations, the effect of interest capitalization would be immaterial. Accordingly, interest cost is only capitalized as a part of the historical cost of the following qualifying assets when such interest is considered to be material, which normally implies that construction or creation occurs over extended periods of time. Common examples include

  1. Assets constructed for an entity’s own use or for which deposit or progress payments are made

  2. Assets produced as discrete projects that are intended for lease or sale

  3. Equity-method investments when the investee is using funds to acquire qualifying assets for principal operations that have not yet begun

 

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