How to Capitalize Borrowing Costs on Project Loans (IAS 23)
Adding interest costs to the value of a 'qualifying asset' during its construction period (IAS 23).
| Account Name | Type | Debit ($) | Credit ($) |
|---|---|---|---|
| Construction in Progress (CIP) | Asset (+) | 1,200.00 | - |
| Interest Payable / Cash | Liability/Asset (-) | - | 1,200.00 |
💡 Accountant's Note
If you borrow money specifically to build a factory, the interest paid *during* construction is not an expense—it is part of the cost of the factory.
Practitioner & Systems Framework
💻 ERP Architecture
Track specific project borrowings separately from general corporate debt in the treasury module. Map the interest expense of specific loans directly to the CIP asset account. If using general borrowings, calculate a capitalization rate and apply it to project expenditures.
⚠️ Audit Flags
Auditors rigorously test the start, suspension, and cessation of capitalization. If active construction stops for an extended period, interest capitalization must also be suspended and charged to P&L. Documentation must prove active development.
📄 Required Documentation
Facility agreement, monthly draw-down and interest statements, project progress reports (to prove active construction), and capitalization rate calculations.
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Expert Analysis by Qusai Ahmad
General Accountant Supervisor & IFRS Specialist
Specialized in SAP GUI automation and Middle Eastern tax compliance. Building digital tools for the next generation of finance leaders.