GASB addresses interest cost incurred before a construction period ends

By Ken Tysiac

State and local governments will provide new information to financial statement users under a standard GASB issued Friday that establishes accounting rules for accounting for interest cost incurred before the end of a construction period.

GASB issued Statement No. 89, Accounting for Interest Cost Incurred Before the End of a Construction Period, to simplify this accounting as well as to enhance the relevance and comparability of information about capital assets and the cost of borrowing for a reporting period.

Under the standard, governments preparing statements using the economic resources measurement focus are required to recognize interest cost incurred before the end of a construction period as an expense in which the cost is incurred. Such interest should not be capitalized as part of the historical cost of a capital asset.

Governments that prepare financial statements using the current financial resources measurement focus are required under the standard to recognize interest incurred before the end of a construction period as an expenditure on a basis consistent with governmental fund accounting principles.

Ken Tysiac (Kenneth.Tysiac@aicpa-cima.com) is a JofA editorial director.

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