Ind AS 23 requires borrowing costs directly attributable to the acquisition, construction or production of a qualifying asset to be capitalised as part of that asset's cost — but only for a qualifying asset, defined as one that necessarily takes a substantial period of time to get ready for its intended use or sale. Most assets purchased ready-to-use don't qualify at all; the requirement is specifically for assets under construction or development over a meaningful period, such as a building, a plant, or self-constructed capital work-in-progress.
Two kinds of borrowing, two different calculations
| Specific borrowing | General borrowings | |
|---|---|---|
| How it's identified | A loan taken specifically to fund the qualifying asset | General-purpose borrowings, not tied to a specific asset, but partly used to fund the qualifying asset's expenditure |
| Amount capitalised | Actual borrowing cost incurred on that loan during the period, less any investment income earned on temporarily investing unused borrowed funds | Weighted average capitalisation rate applied to the qualifying asset's expenditure, up to a ceiling of the actual general borrowing costs incurred that period |
The three timing conditions
- 01Capitalisation beginsOnly once expenditure on the asset is being incurred, borrowing costs are being incurred, and activities necessary to prepare the asset for its intended use are actually in progress — all three conditions, not just one.
- 02Capitalisation is suspendedDuring extended periods in which active development is interrupted — a genuine pause in construction, not routine administrative delay or a brief technical hold-up.
- 03Capitalisation stopsWhen substantially all the activities necessary to prepare the asset for its intended use are complete — even if minor finishing work or administrative formalities remain outstanding.
Continuing to capitalise interest after an asset is substantially complete and capable of being used — simply because final touches or a formal handover certificate are still pending — overstates the asset and understates the period's finance costs. The standard's test is substantial completion of the activities needed to prepare the asset for use, not a formal completion certificate's date.
Common practice, not a requirement
Where a qualifying asset is completed in parts that are each usable independently while construction continues on the rest (a multi-building complex, phased production units), capitalisation should stop separately for each completed part as it becomes usable, rather than continuing for the whole project until every part is finished.
This is practical guidance written for audit teams, not an authoritative statement of any standard or statute. Standards, forms and timelines change. Check the current text issued by the ICAI and the relevant authority before relying on anything here in an audit file.
Related resources
- Fixed assets & capexCapital work-in-progress (CWIP) audit proceduresAgeing stalled CWIP, testing the capitalisation trigger, applying Ind AS 23 in practice, and the ageing schedule now required in the financial statements.
- Fixed assets & capexInd AS 16: property, plant and equipment — recognition, componentization and derecognitionA single asset with parts that wear out on different schedules isn't one depreciation calculation — Ind AS 16 requires splitting it, and a lot of fixed asset registers still don't.
- Bank, cash & treasuryLoans and borrowings audit checklistSanction letter checks, charge verification against ROC filings, covenant compliance, interest testing, and current/non-current classification.
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