Comparison between U.S. GAAP and International ... - Grant Thornton

Comparison between U.S. GAAP and International Financial Reporting Standards 41
IFRS
is significant in relation to the total cost of the item shall be
depreciated separately (IAS 16.43).
The carrying amounts of parts or components that are
replaced are derecognised (IAS16.70).
Depreciation ceases in accordance with IFRS 5 if asset
qualifies as held for sale (see Section 2.6, “Non-current
assets held for sale and discontinued operations”).
U.S. GAAP
and rational (ASC 360-10-35-4).
Similar to IFRS (ASC 360-10-35-43).
Borrowing costs
IAS 23 applies to a qualifying asset which is an asset that
necessarily takes a substantial period of time to get ready
for its intended use or sale (IAS 23.5).
Financial assets, and inventories that are manufactured,
or otherwise produced, over a short period of time are not
qualifying assets. Assets that are ready for their intended
use or sale when acquired are not qualifying assets
(IAS 23.7).
Borrowing costs are interest and other costs that an entity
incurs in connection with the borrowing of funds (IAS
23.5). Borrowing costs may be interpreted more broadly
than interest costs (e.g. exchange differences arising from
foreign currency borrowings to the extent that they are
regarded as an adjustment to interest costs) (IAS 23.6(e)).
An entity shall capitalise borrowing costs that are directly
attributable to the acquisition, construction or production
of a qualifying asset as part of the cost of that asset. An
entity shall recognise other borrowing costs as an
expense in the period in which it incurs them (IAS 23.8).
When an entity borrows funds specifically for the purpose
of obtaining a qualifying asset IAS 23 requires an entity
(IAS 23.12 and BC23):
• To capitalise the actual borrowing costs incurred on
that borrowing
• To deduct any income earned on the temporary
investment of actual borrowings from the amount of
borrowing costs to be capitalised
When an entity borrows funds generally and uses them to
obtain a qualifying asset, IAS 23 permits some flexibility in
determining the capitalisation rate, but requires an entity
to use all outstanding borrowings other than those made
specifically to obtain a qualifying asset (IAS 23.14 and
BC24).
IAS 23 allows capitalisation once actual borrowing costs
have been incurred and activities in preparing the asset
for its intended use or sale are in progress (IAS 23.17-
.19).
Unlike IFRS, the definition of a qualifying asset does not
include the term substantial
(ASC 835-20-15-5 through 15-6).
Unlike IFRS, borrowing costs are generally limited to
interest cost (ASC 835-20-05-1).
Interest costs must be capitalized as part of the
historical cost of qualifying assets when those assets
require a period of time (e.g. a construction period) to
get them ready for their intended use (ASC 835-20-05-1
and ASC 360-10-30-1).
When an entity borrows funds specifically for the
purpose of obtaining a qualifying asset:
• ASC 835-20-30-3 states that an entity may use the
rate of that borrowing
• Unlike IFRS, ASC 835-20-30-10 does not generally
permit a deduction for income earned, unless
particular tax-exempt borrowings are involved
ASC 835-20-30-4 requires an entity to use judgment in
determining the capitalization rate to apply to the
expenditures on the asset – an entity selects the
borrowings that it considers appropriate to meet the
objective of capitalizing the interest costs incurred that
otherwise could have been avoided.
ASC 835 requires interest cost capitalization when
activities to get asset ready for intended use are in
progress, expenditures have been made, and interest is
being incurred (ASC 835-20-30-2).
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