Borrowing cost capitalization stops too early or too late because the actual cessation point under Ind AS 23 — when substantially all the activities necessary to prepare the qualifying asset for its intended use or sale are complete — is a judgment call distinct from either the date construction work fully wraps up or the date the related loan is repaid, and companies routinely anchor to one of those easier, wrong dates instead of the harder question of whether the asset is actually ready for its intended use.
Where capitalization runs on too long
- An asset is substantially ready and already generating output, but capitalization continues because final finishing work (landscaping, minor fit-out) is still ongoing.
- A project is split into phases and each phase becomes usable independently, but capitalization continues on completed phases because the overall project isn't finished.
- Capitalization continues until the construction loan is fully drawn down or repaid, regardless of when the asset itself became usable.
Where it stops too early
- Capitalization is cut off the moment physical construction activity pauses, without checking whether that pause is a necessary part of getting the asset ready (a curing period, a required inspection) versus an unplanned interruption.
- An asset reaches physical completion but still needs regulatory approval or testing before it can actually be used, and capitalization is stopped before that approval is in hand.
A necessary suspension that's part of getting the asset ready — waiting for concrete to cure, waiting for a mandatory safety inspection before commissioning — is not the same as an unplanned interruption, and Ind AS 23 only requires capitalization to pause for the latter. Treating every pause the same way is a common source of error in both directions.
What actually fixes the cutoff
The cutoff date needs to be assessed against physical and functional readiness for intended use — commissioning records, first productive output, regulatory sign-off — not against the construction contract's completion certificate or the loan's repayment schedule, both of which can diverge from the actual readiness date by months in either direction.
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 & capexInd AS 23: borrowing costs, and which ones actually get capitalisedNot every loan funding construction gets its interest capitalised automatically — the asset has to qualify, and capitalisation has to actually stop at a specific point.
- 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.
- 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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