Suspension of borrowing cost capitalisation during construction interruptions

Failing to suspend capitalization during genuine construction halts overstates the asset's carrying amount and understates period finance costs, inflating reported profitability during a halt while the underlying project generates no progress; conversely, over-suspending for normal delays understates asset cost and distorts development margins on completion.

Has management made a specific, documented decision on the intended use of the land, or does no such decision exist? Pending a use decision, is the land classified by default as investment property (held for undetermined future use = capital appreciation)? Is the group's elected fair value or cost model applied consistently to this parcel as part of the wider investment property portfolio? What objective triggering event (approved master plan, zoning application, board resolution, commencement of construction) would justify reclassification, and has it genuinely occurred?

1) Confirm the asset is a qualifying asset (takes a substantial period to get ready for its intended use) and that borrowing costs are being capitalized under the general or specific borrowings method.
2) When site activity stops or slows, ask whether active development has genuinely paused - no design work, procurement, or physical construction proceeding - versus a routine, technically necessary pause inherent to the construction process.
3) If the interruption is an 'extended period' (e.g., a multi-month permitting freeze, funding gap, or legal dispute halting the works), suspend capitalization from the point the interruption becomes extended, not retroactively from day one of the halt.
4) If the interruption is short and normal for the asset type (e.g., a rainy-season pause for concrete curing, routine inspection approvals, brief holiday shutdowns), continue capitalizing - these do not trigger suspension.
5) During suspension, expense the borrowing costs accruing on the related debt as a period cost; do not accrue them as a catch-up asset for later capitalization.
6) Resume capitalization prospectively from the date substantial development activity restarts - do not wait for full remobilization or for the dispute to be fully resolved if meaningful activity has already resumed.
7) Document the suspension/resumption dates and rationale contemporaneously, since this judgement is often challenged in audit and by lenders monitoring capitalized interest covenants.

Measure suspended-period borrowing costs at the amount actually incurred on the qualifying asset's associated debt (specific borrowings) or the weighted average capitalization rate applied to eligible expenditure (general borrowings pool), then expense that amount in profit or loss for the suspension period rather than adding it to the asset's cost. On resumption, the capitalization rate/method reverts to the normal IAS 23 mechanics - specific borrowings net of any temporary investment income, or the weighted average rate on the general pool - applied prospectively to expenditure incurred and financing costs accrued from the resumption date onward. No catch-up capitalization is made for the suspended period once activity restarts; the expensed amounts are not later reclassified to the asset.

Disclose the amount of borrowing costs capitalized during the period; the capitalization rate(s) used for the general borrowings pool; a description of any suspension event and the period(s) affected, with the amount expensed as a result; the qualifying assets to which capitalization relates; whether specific or general borrowings (or both) funded the qualifying asset during the period.

• Continuing to capitalize profit-rate/interest charges throughout an extended permitting dispute because the loan remains project-specific, regardless of site inactivity
• treating a short, technically necessary delay (e.g., a two-week weather delay for foundation curing) as a suspension event and expensing costs that should remain capitalized
• failing to resume capitalization promptly once meaningful work restarts, continuing to expense costs unnecessarily
• applying suspension at the portfolio level instead of asset-by-asset, missing that one phase of a multi-phase project has resumed while another remains halted
• not documenting the suspension decision, leaving the capitalization rate and asset cost unsupported on audit.