Governmental Accounting Standards Board Changes Capitalized Interest Requirements

On June 22, 2018, the Governmental Accounting Standards Board (GASB) issued Statement Number 89, Accounting for Interest Cost Incurred before the End of a Construction Period.

The statement makes capital-assets information and the cost of borrowing for a reporting period more relevant and comparable. It also streamlines accounting for interest cost incurred before a construction period ends.

Key Provisions

Economic Resources Measurement Focus

Entities that prepare financial statements using the economic resources measurement focus include business-type activities and enterprise funds, such as:

  • Tribal casinos
  • Public utilities
  • Public transit agencies
  • Seaport and airports

For these organizations, interest cost incurred before the end of a construction period should be recognized as an expense in the period in which the cost is incurred. Such interest cost shouldn’t be capitalized as part of the historical cost of a capital asset.

This new requirement will apply prospectively, therefore, no restatement of financial statements for amounts previously capitalized is required.

Financial Resources Measurement Focus

For financial statements prepared using the current financial resources measurement focus—which includes governmental fund statements of tribes, cities, and counties—interest incurred before the end of a construction period should continue to be recognized as an expenditure on a basis consistent with governmental fund accounting principles.  

Effective Dates and Transition

GASB Statement Number 89 is effective for reporting periods beginning after December 15, 2019, although earlier application is encouraged.
The requirements should be applied prospectively.

We’re Here to Help

For more information about how GASB Statement Number 89 may affect your organization, contact your Moss Adams professional.