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ISCA comments on IFRIC’s Tentative Agenda Decision – Over Time Transfer of Constructed Good (IAS 23)

We note the IFRS Interpretations Committee (IFRIC)’s tentative conclusion that the entity should not capitalise borrowing costs under the described fact pattern and IFRIC’s observation (c) below:

(c) any inventory (work-in-progress) for unsold units under construction that the entity recognises is not a qualifying asset. In the fact pattern described in the request, this asset is ready for its intended sale in its current condition – ie, the entity intends to sell the part-constructed units as soon as it finds suitable customers and, on signing a contract with a customer, will transfer control of any work-in-progress related to that unit to the customer. 

We wish to highlight the following concerns we have regarding observation (c) above:

– Scope of the Tentative Agenda Decision is unclear;

– Conceptual challenge to differentiate between property developers who recognise revenue overtime and those who recognise revenue at a point in time/on completion.

In addition, we do not agree with observation (c) for the following reasons:

– Pre-emption of method of revenue recognition;

– Contrary to current market practice;

– Presentation of margins for projects will differ and usefulness of financial reporting may deteriorate.

Hence, we urge IFRIC to look into the existing definition of qualifying asset under paragraph 5 of IAS 23 Borrowing Costs whereby “A qualifying asset is an asset that necessarily takes a substantial period of time to get ready for its intended use or sale” and the implications arising from the current rationale provided for its agenda decision.

We would also ask IFRIC to clarify the scope of the agenda decision, particularly if it is intended to be applicable to situations where revenue is being recognised over time only.


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