Capitalization of Interest (Borrowing Costs) during Construction
Capitalizing interest expense on project-specific debt during the construction phase of an infrastructure asset.
| Account Name | Type | Debit ($) | Credit ($) |
|---|---|---|---|
| Intangible Asset / Financial Asset (Construction in Progress) | Asset (+) | 55,000.00 | - |
| Cash / Accrued Interest Payable | Asset (-) / Liability (+) | - | 55,000.00 |
💡 Accountant's Note
Infrastructure projects are almost always highly leveraged. Under ASC 835-20, interest costs directly attributable to the construction of a 'qualifying asset' must be capitalized. In a PPP, these costs increase the carrying value of the Intangible or Financial asset being built.
Practitioner & Systems Framework
💻 ERP Architecture
Requires a link between the Debt Management module and the Project/Asset module to auto-calculate capitalized interest based on the monthly spend.
⚠️ Audit Flags
Interest capitalization must cease the moment the asset is 'substantially complete and ready for use.' Continuing to capitalize interest after the road is open is a common fraud risk to boost earnings.
📄 Required Documentation
Loan agreement (project-specific debt), interest calculation workpaper, and the 'Date of Substantial Completion' certificate.
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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.
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