What do IAS 23 and ASC 835-20 have in common?
Both require interest to be capitalized on assets that take a substantial period to get ready for use or sale, such as plants, buildings and ships; both use the actual cost of borrowings made specifically for the asset and a weighted average rate on other borrowings for expenditure funded generally; both cap the amount at the interest actually incurred; and both start capitalizing when expenditure, borrowing and activity are under way, suspend it during long interruptions, and stop when the asset is substantially complete. See IAS 23 borrowing costs.
IAS 23 vs ASC 835-20: what are the differences?
| Area | IAS 23 | ASC 835-20 |
|---|---|---|
| Income on temporarily invested specific borrowings | Deducted from the amount capitalized | Generally not deducted, except for certain restricted tax-exempt borrowings |
| Exchange differences on foreign currency borrowings | Included to the extent they adjust interest costs | Excluded |
| Interest on lease liabilities | All lease liabilities under IFRS 16 | Finance leases only |
| Equity method investments | Not qualifying assets | Can qualify while the investee prepares to begin its planned principal operations |
| Inventories produced repetitively over a long period | Capitalization optional, for example wine or whisky | Not qualifying assets |
| Development costs | Can be qualifying assets once capitalized under IAS 38 | Research and development is expensed, so it does not qualify |
| Capitalized interest in the cash flow statement | Policy choice: investing, or with other interest paid | Investing activities |
| Disclosure | Amount capitalized and the capitalization rate | Total interest incurred and the amount capitalized |
An example: the factory from the IAS 23 guide under US GAAP
A company builds a factory with a specific loan of CU 5,000 thousand at 8%, earning CU 100 thousand on the part not yet spent, and funds a further CU 3,000 thousand of average expenditure from general borrowings costing 7%. All figures are in CU thousand.
| Interest capitalized | IAS 23 | ASC 835-20 |
|---|---|---|
| Specific loan: 5,000 x 8% | 400 | 400 |
| Less investment income on unspent funds | (100) | Not deducted |
| General borrowings: 3,000 x 7% | 210 | 210 |
| Capitalized | 510 | 610 |
US GAAP capitalizes CU 100 thousand more, and reports the CU 100 thousand of investment income as income, so profit during construction is higher under US GAAP by the income and the extra capitalized interest; the factory then carries a higher cost and higher depreciation over its life. Had the specific loan been in a foreign currency, IFRS could also have capitalized part of the exchange loss. The borrowing cost capitalisation model (Excel) gives both answers from the same inputs.
How are hedges of borrowings treated?
IAS 23 does not address derivatives directly; in practice, interest settlements on a swap that hedges an eligible borrowing are often included, but fair value changes are not. US GAAP generally excludes derivative gains and losses, with specific exceptions for fair value hedges of fixed-rate debt and for amounts reclassified from other comprehensive income under cash flow hedges. See ASC 815 derivatives and hedging.
Is there industry-specific guidance?
US GAAP has more of it, for example for real estate projects and oil and gas producing activities, while IFRS applies IAS 23 in the same way across industries. See borrowing costs in construction.
Where to go next
See IFRS vs US GAAP key differences and IAS 16 property, plant and equipment.
Keep going
Our free Excel models work through the examples in these guides, and the comparisons show where IFRS and US GAAP part ways. Every guide names the Chartered Accountant who wrote it and the one who reviewed it.
Questions people ask
What is the main difference between IAS 23 and ASC 835-20?
IFRS deducts investment income earned on specific borrowings before they are spent, while US GAAP generally does not, so US GAAP often capitalizes more interest.
Are exchange differences capitalized as borrowing costs?
Under IFRS, to the extent they are regarded as an adjustment to interest costs; under US GAAP, no.
Can an equity method investment be a qualifying asset?
Under US GAAP, yes, while the investee is preparing to begin its planned principal operations; under IFRS, no.
Where is capitalized interest shown in the cash flow statement?
Under US GAAP, in investing activities; under IFRS, the company chooses investing or the same classification as other interest paid.
Sources
The standards, updates and other documents this guide draws on.
- IFRS Foundation: IAS 23 Borrowing Costs
- FASB Accounting Standards Codification: Subtopic 835-20, Capitalization of Interest
- KPMG US: Borrowing costs, IFRS compared to US GAAP
Rules and fees change. If you are reading this long after October 26, 2026, confirm the figures with the source before you rely on them.
Related guides
More in IFRS vs US GAAP
This guide is general information. It is not tax or legal advice for your situation.