Corporate Financial Reporting · Borrowing Costs (Ind AS 23)

Commencement, Suspension and Cessation of Capitalisation under Ind AS 23

Updated 11 October 2026 · Fact-checked

Under Ind AS 23, you start capitalising borrowing costs on a qualifying asset on the date all three conditions are met: expenditure incurred, borrowing costs incurred, and necessary activities under way. You suspend during extended periods when active development is suspended. You stop when substantially all activities needed to make the asset ready are complete.

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 lets you capitalise them only for the period in which the qualifying asset is actually being made ready. A qualifying asset is one that necessarily takes a substantial period of time to get ready for its intended use or sale. So the question is always about timing: from when, until when, and with what gaps.

Commencement. Capitalisation begins on the commencement date. That is the date when you first meet all three conditions together: (a) you incur expenditure for the asset, (b) you incur borrowing costs, and (c) you undertake activities necessary to prepare the asset for its intended use or sale. If even one is missing, capitalisation has not started. Expenditure here means payments of cash, transfers of other assets or assumption of interest-bearing liabilities.

Activities cover more than physical construction. Technical and administrative work before construction, such as obtaining permits, counts. But merely holding an asset with no development that changes its condition does not count. Land bought and left idle does not qualify. Land under development does.

Suspension. You must suspend capitalisation during extended periods when you suspend active development. Interest in that gap is the cost of holding a partly finished asset, so it goes to profit or loss. You do not suspend when substantial technical and administrative work continues, or when a temporary delay is a necessary part of the process. The standard's example: high water levels delaying a bridge, if such levels are common in that region during construction.

Cessation. You stop capitalising when substantially all the activities necessary to prepare the asset for its intended use or sale are complete. Borrowing costs after that point are expensed.

Key rules to remember

Commencement date (para 17): Expenditure incurred AND borrowing costs incurred AND necessary activities undertaken; All three must be met. The commencement date is the date the last of them is first satisfied.
Suspension (paras 20-21): Suspend during extended periods of suspended active development; Do not suspend for substantial technical or administrative work, or for temporary delays that are a necessary part of the process.
Cessation (para 22): Stop when substantially all activities to prepare the asset are complete; Minor remaining work does not delay cessation.
Cap on amount (para 14): Borrowing costs capitalised in a period ≤ borrowing costs incurred in that period; Applies to general borrowings computed using a capitalisation rate.
Specific borrowing (para 12): Eligible cost = actual borrowing costs incurred − investment income on temporary investment; Calculate only for the capitalisation period.

How to solve Commencement, Suspension and Cessation of Capitalisation questions

Use a timeline. Mark each event on it, then decide the capitalisation window and its gaps before you compute any amount.

1Confirm the asset is a qualifying asset: it necessarily takes a substantial period to get ready.
2List the dates of the first expenditure, the first borrowing cost and the first necessary activity (including permits and design work).
3Set the commencement date as the latest of these three dates.
4Mark any period of halted work. Decide if it is an extended suspension of active development, or a temporary delay that is a necessary part of the process, or a period of substantial technical or administrative work.
5Exclude the months of genuine suspension. Keep the months of necessary delay or ongoing technical work.
6Find the date when substantially all activities are complete, and end capitalisation there.
7Compute eligible cost for the capitalisation months only, using the specific or general borrowing method, and apply the cap and deduct investment income.
8Show the balance of borrowing cost as an expense in profit or loss and state your reason in one line.

Quickest way: Three-date, two-gap check

When to use it: Use this for MCQs and for the first part of a written answer when dates are given.

Pick the latest of the three commencement dates.
Pick the date of substantial completion.
Subtract only the extended periods of genuinely suspended active development.
Check the reason for each pause: a normal seasonal or necessary delay stays in; an idle halt for funds, disputes or strategy goes out.
Count the months left and multiply by the monthly cost.

Common mistakes in Commencement, Suspension and Cessation of Capitalisation

Starting capitalisation on the date the loan is drawn.
Students link capitalisation to borrowing alone.
Fix: Check all three conditions. Loan drawn but no expenditure or activity means no capitalisation yet.
Ignoring permit and design work as qualifying activity.
Students think only physical construction counts.
Fix: Remember para 19: technical and administrative work before construction, such as obtaining permits, counts.
Suspending capitalisation for every pause in work.
Students overlook the word extended and the exceptions.
Fix: Suspend only for extended periods of suspended active development. Do not suspend for a temporary delay that is a necessary part of the process, such as common seasonal conditions.
Continuing capitalisation until the asset is put to use or sold.
Students confuse completion of activities with start of use.
Fix: Cessation is when substantially all activities are complete, even if use or sale starts later.
Capitalising interest on land bought and held idle.
Land is treated as a qualifying asset automatically.
Fix: Capitalise only while development activity on the land is taking place. Idle holding does not qualify.
Capitalising more than the interest actually incurred.
Students apply a rate and forget the cap.
Fix: Compare the result with total borrowing costs incurred in the period and take the lower.

Worked examples

Example 1

Ganga Infra Ltd borrowed ₹10,00,000 at 12% p.a. on 1 April 2026 specifically to build a warehouse (a qualifying asset). Permits were obtained on 1 May 2026 and the first payment to the contractor was made on 1 June 2026. Construction was complete on 31 December 2026. Work was halted for no reason connected to construction for the whole of September and October 2026, an extended period of suspended active development. Interest is paid monthly and no surplus funds were invested. Compute the borrowing cost to be capitalised and expensed for 1 April to 31 December 2026.

Show the solution

Commencement: borrowing cost incurred from 1 April, permit activity from 1 May, expenditure from 1 June. All three are met on 1 June 2026.
Cessation: 31 December 2026, when construction is complete.
Window: 1 June to 31 December is 7 months.
Suspension: September and October, 2 months, are excluded. Capitalisation months = 7 − 2 = 5.
Monthly interest = ₹10,00,000 × 12% ÷ 12 = ₹10,000.
Capitalised = 5 × ₹10,000 = ₹50,000.
Total interest from 1 April to 31 December = 9 × ₹10,000 = ₹90,000.
Expensed = ₹90,000 − ₹50,000 = ₹40,000, made up of April and May (2 months), September and October (2 months).

Answer: ₹50,000 is capitalised to the warehouse and ₹40,000 is charged to profit or loss.

Example 2

Kaveri Roads Ltd is building a bridge across a river. Work stops for 3 months every year during monsoon, when high water levels are common in the region. Separately, in one year, work stopped for 4 months because the company diverted its funds to another project. Interest on the specific loan is ₹2,00,000 per month. Which of these periods are suspended for capitalisation, and what is the effect on cost?

Show the solution

Monsoon halt: high water levels are common in the region during the construction period. It is a temporary delay that is a necessary part of the process, so capitalisation continues. Interest of 3 × ₹2,00,000 = ₹6,00,000 is capitalised.
Funds-diversion halt: it is an extended period in which active development is suspended, not a necessary part of the process. Capitalisation is suspended.
Interest for those 4 months = 4 × ₹2,00,000 = ₹8,00,000. It is the cost of holding a partly built asset, so it is expensed.

Answer: The monsoon months continue to be capitalised (₹6,00,000), while the 4 months of diversion are suspended and ₹8,00,000 is charged to profit or loss.

Exam tips

Always write the commencement date with all three conditions listed. Marks are often given for naming them.
In case scenarios, read the reason for each pause. The reason decides whether it is suspension or a necessary delay.
Quote the standard's bridge and high water example when a delay is seasonal and common in the region.
Show expensed interest separately from capitalised interest, so the total ties to interest incurred.
For MCQs, watch for options that start capitalisation on loan drawdown or continue it after substantial completion.

Practice questions from Borrowing Costs (Ind AS 23)

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 commence under Ind AS 23?

It commences on the date you first meet all three conditions: you incur expenditure on the asset, you incur borrowing costs, and you undertake activities necessary to prepare the asset for its intended use or sale. If any one is missing, capitalisation has not begun.

Do permit and approval activities count as necessary activities?

Yes. Technical and administrative work before physical construction, such as obtaining permits, counts. But merely holding an asset with no development taking place does not.

When must capitalisation be suspended?

You must suspend it during extended periods in which you suspend active development of the qualifying asset. You do not suspend it for substantial technical and administrative work, or for a temporary delay that is a necessary part of getting the asset ready.

When does capitalisation cease?

It ceases when substantially all the activities necessary to prepare the qualifying asset for its intended use or sale are complete. Borrowing costs after that date are expensed, even if the asset is not yet in use.