Revenue – ifrs 15 handbook

Interest accrued on a contract liability is a borrowing cost eligible 
for capitalisation
IFRS 15.60, BC229–BC230
If an entity accrues interest on a contract liability that represents advance 
consideration received under a contract with a customer, then in our view 
this interest meets the definition of borrowing costs because the interest 
represents the cost to the entity of borrowing funds from its customer. To the 
extent that the other criteria in the borrowing costs standard are met, this 
interest should be capitalised.
 
Additional application examples
Example 17 – Determining whether an arrangement has a 
significant financing component: Advance payment and fixed 
delivery
Carmaker M submits a purchase order to Automotive Supplier P for the 
delivery of 10,000 parts over five years for a fixed price of 1 million. Under the 
contract, M will pay the full amount in advance. The contract also contains 
a predetermined delivery schedule for the parts. P has determined that if it 
received a loan for a similar amount, to be repaid over five years, then the loan 
would bear interest of 5%.
P determines that the contract includes a significant financing component, 
owing to the five-year period between the prepayment and the delivery date of 
the last part and the 5% interest rate. P does not identify any indicators that the 
deferred terms are for reasons other than financing.
Example 18 – Determining whether an arrangement has a 
significant financing component: Advance payment and delivery at 
customer’s discretion
Carmaker M enters into a framework agreement with Automotive Supplier D. 
In the framework agreement, M commits to a minimum quantity of 10,000 
parts to be delivered over five years. However, the timing of delivery is fully at 
M’s discretion. M agrees to prepay 1 million for the first 10,000 parts. Purchase 
orders for additional parts will be paid for at the time of delivery. 
D concludes that the framework agreement does not contain a significant 
financing component, because even though M has paid for 10,000 parts in 
advance, the timing of the transfer of the parts is at M’s discretion.

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3 Step 3 – Determine the transaction price | 75
3.2 Significant financing component
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