Financial Reporting · Ind AS 23 Borrowing Costs

Ind AS 23: Commencement, Suspension and Cessation of Capitalisation

Updated 5 October 2026 · Fact-checked

Under Ind AS 23, you start capitalising borrowing costs on a qualifying asset when expenditure, borrowing costs and activities to prepare the asset are all in progress. You suspend during extended periods when active development stops. You cease when substantially all activities for intended use or sale are complete. Solve by building a timeline and counting only active months.

Understand Commencement, Suspension and Cessation of Capitalisation

Ind AS 23 does not let you capitalise borrowing costs for the whole life of a loan. It allows capitalisation only for a window of time. That window has a start date, possible pauses, and an end date. Most exam marks come from fixing these three dates correctly.

Commencement. Capitalisation begins on the commencement date. This is the first date on which all three conditions are met: (a) you incur expenditure on the asset, (b) you incur borrowing costs, and (c) you undertake activities necessary to prepare the asset for its intended use or sale. Until all three are true, borrowing costs go to profit or loss. Expenditure means payments of cash, transfer of other assets or assumption of interest-bearing liabilities. It is reduced by progress payments and grants received. Activities include more than physical construction. Technical and administrative work before construction, such as obtaining permits, counts. But merely holding an asset with no development going on does not count. Buying land and holding it idle does not start capitalisation.

Suspension. You suspend capitalisation during extended periods in which active development is interrupted. The pause is for the extended period only. Borrowing costs in that period are expensed. You do not suspend when a temporary delay is a necessary part of the process. Examples are a period of high water levels that commonly delays bridge construction in that region, or substantial technical and administrative work still going on. Delays from shortage of funds or routine short stoppages do not justify capitalising if the interruption is extended.

Cessation. You stop capitalising when substantially all the activities needed to prepare the asset for its intended use or sale are complete. An asset is normally ready when physical construction is complete, even if routine administrative work continues. Minor modifications, such as décor to the buyer's specification, do not stop the asset being ready. If the asset is completed in parts and each part can be used while construction of the others continues, you stop capitalising on that part when it is substantially complete. An example is a business park with several buildings, each usable on its own. If the asset is a single asset, or a part cannot be used until the whole is complete, such as an industrial plant with several processes performed in sequence, you wait until the whole is substantially complete.

Key rules to remember

Commencement date: Date when (expenditure incurred) AND (borrowing costs incurred) AND (activities in progress) are all met; The latest date on which the three conditions are met is the start. Borrowing costs must have been incurred, for example interest has begun to accrue on the loan. Missing even one condition means no capitalisation.
Suspension rule: Extended period with active development suspended → stop capitalising, expense the borrowing costs; Do not suspend for temporary delays that are a necessary part of the process, or while substantial technical and administrative work continues.
Cessation rule: Cease when substantially all activities to prepare the asset for intended use or sale are complete; Minor modifications and routine administrative work do not defer cessation.
Assets completed in parts: Part usable while other parts continue → cease for that part when it is substantially complete; If a part cannot be used until the whole is complete, cease only when the whole is substantially complete.
Capitalisation period: Months capitalised = months from commencement date to cessation date − months of extended suspension; Use this to weight the amount of borrowing cost in month-based questions.

How to solve Commencement, Suspension and Cessation of Capitalisation questions

Use a timeline. Mark each event, then test each period against the rules. Do not touch the interest numbers until the dates are settled.

1Confirm the asset is a qualifying asset: one that necessarily takes a substantial period to get ready for its intended use or sale.
2List all dates in the case: loan drawn, date borrowing costs start accruing, first payment on the asset, start of work, stoppages, completion, start of use.
3Find the commencement date. It is the first date when expenditure, borrowing costs and preparation activities are all present. Take the latest of the three conditions to be met. Borrowing costs must have been incurred, for example interest has begun to accrue on the loan.
4Test each stoppage. Ask: is it an extended period with active development suspended? Is it a temporary delay that is a necessary part of the process? Suspend only for extended periods.
5Find the cessation date. Use the date when substantially all activities are complete, not the date of inauguration, registration or first sale.
6If the asset is built in parts, treat each part separately if it is usable while the rest continues. Otherwise use one date for the whole.
7Compute the borrowing cost for the capitalisation window only (rate × amount × months ÷ 12). Charge all other periods to profit or loss.
8Write the conclusion in provision-facts-conclusion form and state the amount capitalised and the amount expensed.

Quickest way: Three-condition timeline check

When to use it: Use in MCQs and in short written answers when the case gives several dates and you have little time.

Underline the dates for the three conditions: when expenditure starts, when activity starts, and when borrowing costs are incurred (for example, interest begins to accrue on the loan). The latest is commencement.
Circle any stoppage. Is it long and is active work stopped? If yes, exclude it. If it is short or inherent in the process, include it.
Underline the word 'ready' or 'complete'. Cessation is at substantial completion, not at later formalities.
Check if parts are separately usable. If yes, split. If no, one date.
Count only the capitalised months and compute.

Common mistakes in Commencement, Suspension and Cessation of Capitalisation

Starting capitalisation on the date the loan is taken.
Students link borrowing cost with the loan alone and forget the other two conditions.
Fix: Check all three conditions. If no expenditure has been incurred or no activity has started, the borrowing costs are expensed.
Suspending capitalisation for every stoppage, even a short one.
Students read 'suspension' as covering any pause in work.
Fix: Suspend only for extended periods when active development is suspended. Short delays, or delays inherent in the process, stay capitalised.
Continuing to capitalise until the asset is actually put to use.
Students confuse 'ready for use' with 'used'.
Fix: Stop when substantially all activities are complete. If the asset is ready but idle, the borrowing costs are expensed.
Treating a plant with sequential processes as completed in parts.
Students see separate units and assume each can be ceased individually.
Fix: Ask whether a part can be used while the rest is under construction. If it cannot, wait for the whole asset.
Capitalising interest during a pause caused by lack of funds.
Students treat the asset as still under construction.
Fix: The test is not the reason for the pause. Ask whether the interruption is extended and active development is suspended. If so, suspend capitalisation, unless the delay is a necessary part of the process.
Treating purchase of idle land as the start of capitalisation.
Students see expenditure and a loan and stop checking.
Fix: Land held without any development activity does not meet the activity condition. Capitalise only once preparation activities begin.

Worked examples

Example 1

Alpha Ltd borrowed ₹10,00,000 at 12% p.a. on 1 April to construct a warehouse (a qualifying asset). It paid ₹4,00,000 to the contractor on 1 June, and the contractor started work on 1 June. Work stopped from 1 August to 31 October because of a labour dispute and a fund shortage; no active development took place. Work resumed on 1 November. The warehouse was substantially complete on 31 December. The entire loan is a specific borrowing. Assume the unspent part of the loan earns no investment income. Compute the borrowing cost to capitalise for the year ended 31 March.

Show the solution

Commencement: the loan is drawn and interest accrues from 1 April, but expenditure and work start on 1 June. All three conditions are met on 1 June.
Suspension: 1 August to 31 October is three months of extended stoppage with no active development. It is excluded.
Cessation: 31 December, when substantially all activities are complete.
Capitalisation window: 1 June to 31 July = 2 months, plus 1 November to 31 December = 2 months. Total 4 months.
Borrowing cost = ₹10,00,000 × 12% × 4 ÷ 12 = ₹40,000.
Assumption: the full ₹10,00,000 bears interest in the window even though only ₹4,00,000 has been paid out. This works only because the question states that the unspent amount earns no investment income. In practice, the unspent part of a specific borrowing is temporarily invested, and the income earned is deducted from the borrowing costs eligible for capitalisation.
Interest for the other months, April and May, August to October, and January to March, is expensed. That is 2 + 3 + 3 = 8 months: ₹10,00,000 × 12% × 8 ÷ 12 = ₹80,000. Total interest for the year is ₹1,20,000, so ₹80,000 is charged to profit or loss.

Answer: ₹40,000 is capitalised. ₹80,000 is charged to profit or loss.

Example 2

Beta Ltd is building a business park with three independent office blocks, each separately usable by tenants. Block A was substantially completed on 30 September and handed over to tenants. Blocks B and C were still under construction on 31 March, the year end. Assume Beta Ltd allocates the borrowing costs to each block on the basis of the expenditure incurred on that block. Beta Ltd also built a chemical plant where Process 1 was completed on 30 September but could not operate until Processes 2 and 3 were finished on 31 December. Borrowing costs are incurred throughout. State the date when capitalisation ceases for Block A and for the plant.

Show the solution

Provision: when an asset is completed in parts and each part can be used while construction continues on other parts, capitalisation ceases for that part when it is substantially complete.
Facts for the business park: Block A is separately usable and was completed on 30 September, while B and C were still under construction on 31 March.
Allocation: on the stated assumption, the borrowing costs attributable to Block A are those based on the expenditure incurred on Block A. The costs based on the expenditure on Blocks B and C are allocated to those blocks.
Conclusion for Block A: capitalisation ceases on 30 September for the borrowing costs allocated to Block A. Borrowing costs allocated to B and C continue to be capitalised, and they have not ceased by 31 March.
Facts for the plant: Process 1 cannot be used until Processes 2 and 3 are done, since the processes are in sequence.
Conclusion for the plant: capitalisation ceases only when the whole plant is substantially complete, on 31 December. Completion of Process 1 on 30 September does not stop capitalisation.

Answer: Block A: ceases on 30 September, for the borrowing costs allocated to it on the basis of its expenditure. Blocks B and C: capitalisation continues beyond 31 March. Chemical plant: ceases on 31 December.

Exam tips

Draw a timeline first in written answers. It makes your dates visible and earns method marks even if a number slips.
Write the three commencement conditions by name in your answer. Examiners look for them.
When a case gives a stoppage, say whether it is extended and whether active work stopped. Then state the conclusion clearly.
For assets in parts, always state the test: can the part be used while the rest is under construction?
In MCQs, watch for words such as 'inauguration', 'first use' and 'minor modifications'. They are often distractors for the cessation date.

Practice questions from Ind AS 23 Borrowing Costs

Commencement, Suspension and Cessation of Capitalisation in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Commencement, Suspension and Cessation of Capitalisation: frequently asked questions

When does capitalisation of borrowing costs begin under Ind AS 23?

It begins on the date when expenditure on the asset, borrowing costs and activities to prepare the asset are all in progress. If any one is missing, you do not capitalise yet. The latest date on which the three conditions are met is the commencement date.

Do you suspend capitalisation for every delay in construction?

No. You suspend only during extended periods when active development is interrupted. You continue to capitalise if the delay is temporary, or is a necessary part of the process, or if substantial technical and administrative work is going on.

When do you stop capitalising borrowing costs?

You stop when substantially all the activities needed to prepare the asset for its intended use or sale are complete. Minor modifications or routine administrative work do not delay cessation. The asset need not have been put to use.

How is cessation treated for an asset completed in parts?

If each part can be used while construction of other parts continues, you cease capitalising for that part when it is substantially complete. If the part cannot be used until the whole asset is complete, you cease only when the whole is substantially complete.