Deferral of IFRIC Agenda Decision on Over Time Transfer of Constructed Goods (PAS 23) for Real Estate Industry

This accounting alert is issued to circulate Securities and Exchange Commission (SEC) Memorandum Circular No. 04-2020 which defers the implementation of the International Financial Reporting Interpretations Committee (IFRIC) agenda decision which clarify that borrowing costs on inventory for unsold units under construction are not capitalized.


In March 2019, the IFRIC in its agenda decision concluded that the principles and requirements in International Accounting Standard (IAS) 23, Borrowing Costs, provide an adequate basis for an entity to determine whether to capitalize borrowing costs in the fact pattern described as follows:

  • A real estate developer (entity) constructs a residential multi-unit real estate development (building) and sells the individual units in the building to customers;
  • The entity borrows funds specifically for the purpose of constructing the building and incurs borrowing costs in connection with that borrowing;
  • Before construction begins, the entity signs contracts with customers for the sale of some of the units in the buildings (sold units);
  • The entity markets for sale the remaining units (unsold units). Accordingly, the entity intends to enter into contracts with customers for the unsold units as soon as it finds suitable customers; and,
  • The terms and relevant facts and circumstances of the contracts with customers are such that, applying International Financial Reporting Standard (IFRS) 15, Revenue from Contracts with Customers, par. 35(c), the entity transfers control of each unit over time and therefore, recognizes revenue over time. 

The IFRIC concluded that any inventory (work-in-progress) for unsold units under construction that the entity recognizes is not a qualifying asset, as the asset is ready for its intended sale in its current condition - i.e., the developer intends to sell the partially constructed units as soon as it finds suitable customers and, on signing a contract with a customer, will transfer control of any work-in-progress relating to that unit to the customer. Accordingly, no borrowing costs can be capitalized on such unsold real estate inventories.

Implementation issues

​The Real Estate Industry raised implementation issues for real estate developers during construction period under jurisdictions such as the Philippines that allow pre-selling activities but still require the seller to develop the real estate property in accordance with the approved plans and within the approved time limit. The SEC took note of the significant impacts and difficulties faced by these real estate companies in immediately implementing the said pronouncement above.

Deferral of implementation

In relation to the above issues, the SEC, in its Memorandum Circular No. 04-2020, provided for the relief to the Real Estate Industry by deferring the implementation of IFRIC Agenda Decision on Over Time Transfer of Constructed Goods (PAS 23) until December 31, 2020.

Effective January 1, 2021, real estate companies in the Philippines shall adopt the IFRIC interpretations and any subsequent amendments thereto retrospectively or as the SEC will later prescribe.

However, a real estate company may opt not to avail of the relief provided and instead comply in full with the requirements of the IFRIC interpretations.

Impact on Financial Statements Prior to 2021

A real estate company opting for the deferral shall be required to disclose in its notes to the financial statements the following:

  • the accounting policies applied,
  • a discussion of the deferral of the subject implementation issues, and,
  • a qualitative discussion of the impact in the financial statements had the IFRIC interpretations been adopted.

However, should the deferral options result into an accounting policy change, such accounting change will have to be accounted for under PAS 8, Accounting Policies, Changes in Accounting Estimates and Errors, retrospectively, together with the corresponding required quantitative disclosures.

The above relief shall form part of PFRS for the purpose of preparing and filing general-purpose financial statements with the SEC.


See attached SEC Memorandum Circular for the details of this publication.