The Governmental Accounting Standards Board has issued guidance outlining the accounting requirements for interest costs incurred before the end of a construction period.

In Statement No. 89, Accounting for Interest Cost Incurred before the End of a Construction Period, GASB spelled out how to treat information about capital assets and the cost of borrowing for a reporting period in an effort to simplify the accounting for interest costs incurred before the end of a construction period.

For financial statements prepared using the economic resources measurement focus, GASB said the 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. That means the interest cost shouldn’t be capitalized as part of the historical cost of a capital asset.

For financial statements prepared using the current financial resources measurement focus, however, GASB said that interest incurred before the end of a construction period should still be recognized as an expenditure on a basis that’s consistent with governmental fund accounting principles.

The requirements take effect for reporting periods starting after Dec. 15, 2019, but GASB is encouraging early adoption. The requirements should be applied prospectively.