Qualifying asset
Necessarily takes a substantial period to get ready for intended use or sale.
Standard orientation
What Ind AS 23 is designed to achieve
Require borrowing costs directly attributable to acquiring, constructing or producing a qualifying asset to form part of that asset’s cost, while other borrowing costs are expensed.
Scope: Applies to borrowing costs but not actual or imputed equity costs. An entity is not required to capitalise costs for qualifying assets measured at fair value or inventories produced in large quantities on a repetitive basis.
Specific borrowing
Capitalise actual cost less temporary-investment income.
General borrowing
Apply weighted-average capitalisation rate to qualifying expenditure.
Timing
Start only when expenditure, borrowing cost and preparation activities all exist.
Reading method: Paragraph references are preserved, but requirements are paraphrased and grouped where they form one integrated rule. Read with the current notified standard.
Full standard map
Paragraph-by-paragraph register
Every operative section is mapped below, including relevant appendices, omitted paragraphs and transition history.
| Paragraphs | Requirement and simple decode |
|---|---|
| 1 | Core principle Directly attributable borrowing costs form part of the qualifying asset; all other borrowing costs are expensed. |
| 2–4 | Scope and optional exemptions Covers borrowing costs, excludes equity costs, and permits non-application for fair-value assets and large-volume repetitive inventories. |
| 5 | Definitions Defines borrowing costs and qualifying asset. |
| 6 | Components of borrowing costs Includes effective-interest expense, lease-liability interest and qualifying exchange differences. |
| 6A | Indian foreign-exchange adjustment Limits exchange-loss treatment to the excess that does not exceed the functional-currency borrowing-cost differential and reverses prior adjustments when gains arise. |
| 7 | Examples and exclusions Possible qualifying assets include inventories, plants, power facilities, intangibles, investment property and bearer plants; ready-for-use assets, financial assets and quickly produced inventory are excluded. |
| 8–9 | Recognition Capitalise directly attributable costs when probable and reliably measurable; expense other borrowing costs. |
| 10–11 | Avoidable-cost concept and judgement Capitalisable cost is the borrowing cost avoided if qualifying-asset expenditure had not occurred; central treasury and group financing require judgement. |
| 12–13 | Specific borrowings Capitalise actual borrowing cost less investment income on temporarily invested funds. |
| 14–15 | General borrowings and capitalisation rate Apply weighted-average borrowing cost to qualifying expenditure, excluding specific borrowings until their asset is substantially ready; total capitalised cannot exceed borrowing cost incurred. |
| 16 | Recoverability ceiling When carrying amount exceeds recoverable amount or NRV, write down under the applicable standard. |
| 17 | Commencement conditions Begin only when expenditures are incurred, borrowing costs are incurred and activities necessary to prepare the asset are underway. |
| 18 | Qualifying expenditures Use cash payments, transfers of other assets or assumption of interest-bearing liabilities, reduced by progress receipts and grants. |
| 19 | Necessary activities Can include technical and administrative work before physical construction, but not merely holding an inactive asset. |
| 20–21 | Suspension Suspend during extended interruption of active development, but not for necessary temporary delays or substantial technical/administrative work. |
| 22–23 | Cessation Stop when substantially all preparation activities are complete; minor decoration or administrative work does not extend capitalisation. |
| 24–25 | Assets completed in parts Stop separately for independently usable parts; continue for parts that cannot function until the integrated project is complete. |
| 26 | Disclosure Disclose amount capitalised and capitalisation rate. |
| 27–28A | Transition Historical paragraphs are omitted; the 2018 annual improvement applies prospectively to borrowing costs from initial application. |
| 29–29D | Effective-date history Tracks Ind AS 116 and annual improvements; current reporting uses the present notified wording. |
| Appendix A | Cross-references Links decommissioning liabilities and service-concession arrangements to borrowing-cost analysis. |
| Appendix 1 | Difference from IAS 23 Highlights India’s paragraph 6A guidance and omitted transition/effective-date paragraphs. |
Major areas decoded
Technical requirements in simple language
Substantial period
The standard does not prescribe a fixed number of months. Nature, complexity and normal preparation time matter.
Specific versus general pools
Specific debt remains specific until the related asset is substantially ready; after that, outstanding debt may enter the general-borrowing pool.
Weighted-average expenditures
General borrowing capitalisation is ordinarily based on time-weighted qualifying expenditure, not simply closing work-in-progress.
Foreign-currency borrowing
Only the interest-adjustment portion qualifies. The entire exchange loss is not automatically borrowing cost.
Suspension
Management-caused or abnormal extended delay usually suspends capitalisation. Necessary seasonal or technical delay may not.
Cut-off by component
A business park can stop capitalising building by building when each is usable; an integrated steel plant may require completion of the whole sequence.
Visual learning
Finin2min decision map
Editable SVG and high-resolution PNG versions are included in the batch assets folder.
Exceptions and high-risk points
What professionals frequently overlook
- Capitalisation is not required for fair-value qualifying assets and large-volume repetitive inventory.
- Equity costs and imputed return on own funds are outside the standard.
- Temporary investment income reduces specific borrowing cost but not a general borrowing rate calculation in the same way.
- An asset ready when acquired is not a qualifying asset.
- Administrative and technical preparation can support commencement before physical construction.
- Temporary delay inherent in the process does not necessarily suspend capitalisation.
- Capitalised cost cannot exceed total borrowing costs incurred.
- Foreign-exchange differences require paragraph 6A’s ceiling and reversal logic.
Practical application
Transaction examples
Fact pattern
Treatment
Reason
Dedicated construction loan at 9%
Specific borrowing
Capitalise actual interest less temporary investment income.
Corporate term loans used partly for plant construction
General borrowing
Apply weighted-average rate to time-weighted qualifying expenditure.
Short-cycle finished goods inventory
Expense
Does not take a substantial period to get ready.
Two-year whisky maturation inventory
Potential qualifying asset
Production necessarily requires a substantial period.
Foreign loan exchange loss
Partly borrowing cost
Apply paragraph 6A; excess exchange loss follows Ind AS 21.
Monsoon pause necessary for curing/settling process
Continue if necessary
A normal required delay may not be an extended interruption of active development.
Accounting mechanics
Illustrative journal entries
Entries are simplified and exclude tax, GST, foreign-currency and entity-specific presentation effects unless stated.
Specific borrowing capitalisation
Dr Qualifying asset / CWIP
Cr Finance cost / Interest payable
Non-qualifying borrowing cost
Dr Finance cost
Cr Interest payable
Suspension period
Dr Finance cost
Cr Interest payable
Exchange difference qualifying under paragraph 6A
Dr Qualifying asset / CWIP
Cr Foreign exchange difference / Payable
CA / finance / boardroom cases
Applied case studies
1. Capitalisation before site work
Applied caseLand is acquired and design, permits and engineering are active for four months before excavation.
Finin2min analysis: Capitalisation can begin when all paragraph 17 conditions are met. Physical construction is not the only qualifying activity.
2. General borrowing rate
Applied caseAn entity has 8%, 10% and 12% general loans. One 9% specific project loan remains outstanding after its project is ready.
Finin2min analysis: For the new qualifying asset, calculate a weighted-average rate on general borrowings and include the formerly specific loan only after its original qualifying asset is substantially ready.
3. Project halted for funding dispute
Applied caseConstruction stops for nine months because the entity cannot arrange equity funding.
Finin2min analysis: Normally suspend capitalisation during the extended inactive period and expense borrowing cost.
4. Residential units completed in phases
Applied caseEach tower can be occupied independently while later towers remain under construction.
Finin2min analysis: Cease capitalisation for each completed tower when substantially ready; continue for unfinished towers.
5. Foreign borrowing comparison
Applied caseUSD borrowing interest plus exchange loss is lower than equivalent INR borrowing cost.
Finin2min analysis: Only the paragraph 6A adjustment up to the permitted differential is borrowing cost; the remaining exchange difference follows Ind AS 21.
Global comparison
Ind AS versus IFRS and US GAAP
| Topic | Ind AS | IFRS | US GAAP |
|---|---|---|---|
| Exchange-difference guidance | Paragraph 6A prescribes a method and ceiling. | IAS 23 contains no equivalent detailed method. | US GAAP generally does not treat foreign-exchange differences as capitalised interest in the same manner. |
| Qualifying inventory | Can qualify; repetitive mass-produced inventory has optional exemption. | Broadly aligned. | Interest may be capitalised for assets requiring time; detailed scope differs. |
| Specific borrowing income | Temporary-investment income reduces eligible borrowing cost. | Broadly aligned. | US GAAP’s avoidable-interest model differs and investment income treatment is not identical. |
| General rate | Weighted average of relevant borrowings; formerly specific debt enters pool after completion. | Broadly aligned after annual improvement. | US GAAP uses an avoidable-interest approach based on weighted accumulated expenditures. |
| Fair-value assets | Optional exemption from capitalisation. | Broadly aligned. | US GAAP scope differs by asset and industry guidance. |
Comparison caution: “Broadly aligned” does not mean identical. Apply entity type, regulator, transition date, statutory format and current amendments.
Implementation lens
Implications for key stakeholders
CFO / Treasury
Define borrowing pools, project mapping, FX methodology and review cut-off.
Project finance
Maintain expenditure timing, project status and interruption evidence.
FP&A
Separate cash interest from capitalised interest and explain EBITDA/P&L impact.
Tax
Track capitalised book interest, tax deductibility and temporary differences.
Audit committee
Challenge prolonged capitalisation, suspended projects and foreign-exchange adjustments.
Quality-control watchlist
Common errors and exam traps
- Capitalising interest before necessary preparation activities start.
- Using closing CWIP instead of time-weighted expenditure.
- Failing to deduct temporary investment income from specific borrowing cost.
- Including all foreign-exchange loss in borrowing costs.
- Continuing capitalisation through abnormal extended delays.
- Stopping too late because minor finishing work remains.
- Treating an asset ready at acquisition as qualifying.
- Excluding a completed project’s specific loan from the general pool indefinitely.
- Capitalising more than total borrowing costs incurred.
- Omitting the disclosed capitalisation rate.
Finin2min Q&A
Frequently asked questions
1. What is a substantial period?
It is judgemental and depends on the asset’s nature and normal preparation process; no universal minimum is prescribed.
2. Can inventory be a qualifying asset?
Yes, when it necessarily takes substantial time, subject to the repetitive-production exemption.
3. When does capitalisation start?
Only when expenditure, borrowing cost and active preparation all exist.
4. Is all foreign-exchange loss capitalised?
No. Paragraph 6A limits the amount treated as an interest adjustment.
5. When is capitalisation suspended?
During extended periods in which active development is interrupted, unless the delay is necessary to the process.
6. Can capitalisation stop part by part?
Yes, when a completed part can be used independently.
Two-minute revision
Finin2min cheat sheet
START–PAUSE–STOP = Spend + Interest + Activity → Suspend abnormal delay → Stop when ready
Document the facts, recognition trigger, measurement basis, cross-standard interaction, significant judgement and disclosure consequence.
October 2026 update: Ind AS 23 Borrowing Costs: Capitalisation Start, Pause and Stop Tests
A project-finance control file for the three dates that determine whether interest enters asset cost.
Finin2min 2-Minute Summary
- Borrowing costs directly attributable to acquiring, constructing or producing a qualifying asset are capitalised as part of that asset's cost; other borrowing costs are expensed.
- Capitalisation begins only when expenditure is being incurred, borrowing costs are being incurred and activities necessary to prepare the asset for use or sale are underway.
- Capitalisation is suspended during extended interruptions of active development, but not for every temporary or necessary delay.
- Capitalisation stops when substantially all activities necessary to prepare the asset for intended use or sale are complete.
- For assets completed in independently usable parts, capitalisation can stop part-by-part.
Qualifying asset comes before the interest calculation
Finance should first document why the asset necessarily takes a substantial period of time to get ready for intended use or sale. Only then should the team build the borrowing-cost schedule. A general desire to improve EBITDA or asset value is not a basis for capitalisation.
The project file should distinguish specific borrowings from general borrowings. For specific borrowings, the directly attributable borrowing cost is assessed with the standard's treatment of temporary investment income. For general borrowings, the capitalisation rate is applied to qualifying expenditures in accordance with Ind AS 23.
The three-date control: start, suspend, stop
Start when all three conditions are present: expenditures for the asset, borrowing costs and activities necessary to prepare the asset. A loan drawdown by itself is not enough if the project has not commenced, and project activity by itself is not enough if qualifying expenditure and borrowing costs are absent.
Suspend during an extended interruption in active development when the entity is essentially holding a partially completed asset. Do not suspend merely because substantial technical or administrative work continues or because a temporary delay is a necessary part of preparing the asset. Stop when substantially all preparation activities are complete.
Worked example: warehouse project paused by permit dispute
A company begins a warehouse project, incurs qualifying construction expenditure and draws project debt. Capitalisation begins when the three conditions are met. If construction then stops for several months because of an avoidable permit dispute and no substantial development activity continues, the interruption should be assessed for suspension. Once construction resumes, capitalisation can resume. When the warehouse is ready for intended use, subsequent interest is ordinarily finance cost rather than asset cost.
Evidence schedule
- Qualifying-asset memo and project timeline.
- Specific and general borrowing agreements.
- Monthly qualifying expenditure schedule.
- Capitalisation-rate calculation and investment-income adjustment where applicable.
- Suspension log explaining whether active development continued.
- Completion certificate or other evidence of readiness for intended use/sale.
Does capitalisation begin when the loan is drawn?
Not automatically. Ind AS 23 requires expenditure, borrowing costs and necessary preparation activities to be present.
Should capitalisation stop during every delay?
No. Extended interruptions of active development can trigger suspension, while necessary temporary delays or periods with substantial technical/administrative work may not.
When does capitalisation end?
When substantially all activities necessary to prepare the qualifying asset for intended use or sale are complete.
Can different parts of one project stop capitalising at different times?
Yes, when parts are completed and capable of being used while work continues on other parts, the standard provides for part-by-part cessation.
Official sources
- ICAI - Ind AS 23 Borrowing Costs - Paras 17-25: commencement, suspension and cessation
- ICAI - Compendium 2025-26 - Current Ind AS corpus
- ICAI - Notified Ind AS Rules - Current rules gateway
- Finin2min Ind AS hub - use the standard-level page for broader paragraph-by-paragraph learning.
Note: Professional-use caution: Borrowing-cost caution: capitalisation depends on a qualifying asset, eligible expenditure, active preparation and the documented timing of interruptions and completion.
Validation register
Primary and authoritative sources
ICAI 2025–26 Ind AS 23 official HTMLPrimary or authoritative reference used for validation.
Open source ↗
Open source ↗
ICAI Educational Material — Ind AS 23Primary or authoritative reference used for validation.
Open source ↗
Open source ↗
IFRS Foundation — IAS 23Primary or authoritative reference used for validation.
Open source ↗
Open source ↗
FASB Statement 34 summaryPrimary or authoritative reference used for validation.
Open source ↗
Open source ↗
FASB CodificationPrimary or authoritative reference used for validation.
Open source ↗
Open source ↗
Review date: 26 June 2026. Recheck later MCA notifications, ICAI compendiums and final international amendments before using this article for a later reporting period.
Source and review trail
Use the current official instrument, portal or regulator publication before acting. Page-specific references are listed below.
- Primary category
- Accounting, Audit & Ind AS
- Official starting point
- www.icai.org