The months nobody worked
Updated: 10 hours ago
If construction of a qualifying asset stops for a while, should the interest still be capitalised?
Ardgowan Hotels Ltd is building a 120-bedroom hotel in Limerick, funded by a €24,000,000 development loan at 6%. Construction began in 2025 and the hotel should open in 2027. The interest, €120,000 a month, has been capitalised into the cost of the building.
In 2026 the site stops three times: for frost in January, for five months after the main contractor goes bust, and for two weeks in October for a fire safety inspection. The finance director asks a fair question: do we carry on capitalising interest through all of it?
What IAS 23 says
IAS 23.20 is a single sentence: an entity suspends capitalisation of borrowing costs during extended periods in which it suspends active development of a qualifying asset. IAS 23.21 explains why. Interest incurred while a half-built asset sits idle is a cost of holding it, not of building it, so it does not qualify for capitalisation.
The same paragraph then gives two exceptions. Capitalisation does not normally stop while substantial technical and administrative work continues. And it does not stop for a temporary delay that is a necessary part of getting the asset ready. The standard's example is a bridge: if high water levels delay construction, and such levels are common during the construction period in that region, capitalisation continues, even over an extended period.
That is all the guidance there is. IAS 23 does not define "extended", gives no number of days, and has no further examples. The test sounds precise. It is not.
Two conditions, both needed
Read closely, IAS 23.20 suspends capitalisation only when both conditions are met:
Active development has stopped. Not just physical construction: technical and administrative work aimed at completing the asset, such as design, permits and approvals, counts as development (IAS 23.19 and 23.21).
The stop is extended. A short break is not enough. And a delay that is a normal, necessary part of the process does not count, however long it lasts.
So a three-month wait for concrete to cure in a cold climate can be capitalised, while a three-month closure because the company ran out of money cannot. The calendar does not decide. The cause and the activity do.
What makes a pause "extended"
Without a bright line, look at the pause in context:
Its length, relative to the project. Two weeks in a three-year build is rarely extended. Five months usually is. A pause that is long compared with the normal stoppages of that kind of project points to suspension.
Whether it was expected. Delays built into the programme from the start, like seasonal weather, inspections and curing times, are part of the process. Unexpected ones usually are not.
Its cause. Pauses inherent in construction support continuing. Pauses caused by funding problems, disputes, insolvency or a decision to wait for better market conditions point to suspension.
What is still happening. If engineers are redesigning the building or the team is working through a planning condition, development is still active. If people are only waiting, it is not.
Who controls the restart. A pause that ends when the weather turns is different from one that ends only when a bank, a court or a buyer says so.
Some companies set a policy threshold, for example treating any stoppage of more than a set number of weeks as extended unless it is a normal part of the process. That is a sensible way to make the judgement consistent, as long as it is a starting point for the assessment and not a substitute for it.
Ardgowan's three stoppages
2026 | What happened | Decision | Why |
January | Three weeks of frost and heavy rain stop concrete work. The programme allowed four weeks for weather. | Keep capitalising | A temporary delay that is normal for the region and season, and was planned for (IAS 23.21) |
April to August | The main contractor becomes insolvent. The site is closed for five months while Ardgowan deals with the bond, retenders the work and appoints a new contractor. | Suspend | An extended period with no work on the building itself, caused by an event outside the normal construction process (IAS 23.20) |
October | Work stops for two weeks for the statutory fire safety inspection before the fit-out phase. | Keep capitalising | A necessary part of getting the hotel ready for use, not a suspension of development |
The April to August closure is the hard one. Ardgowan's team was busy: lawyers dealt with the contractor's bond, the quantity surveyor prepared a new tender, and the project manager negotiated with bidders. But that work was aimed at restarting the project, not at developing the hotel. Nothing was designed, approved or built. Ardgowan concludes that active development was suspended for an extended period and stops capitalising from 1 April until the new contractor starts on 1 September.
Ardgowan, 2026 (€) | Capitalise throughout | Suspend April to August |
Interest on the development loan | 1,440,000 | 1,440,000 |
Capitalised in the hotel under construction | 1,440,000 | 840,000 |
Recognised in profit or loss (finance costs) | – | 600,000 |
Had Ardgowan used the closure to redesign the upper floors, with architects and engineers working on revised drawings and approvals throughout, the answer could be different: substantial technical work would have continued (IAS 23.21). The facts need to support that. A redesign started to keep interest capitalised, rather than because the building needed it, would not.
Common situations
Situation | Usual answer |
Seasonal weather that is common in the region and allowed for in the programme | Keep capitalising (IAS 23.21) |
Curing, drying, testing or statutory inspections between phases | Keep capitalising: part of the process |
A strike or supply problem lasting days or a few weeks | Usually keep capitalising: not extended |
Physical work stops but substantial technical work continues, such as a redesign to meet a new planning condition | Usually keep capitalising (IAS 23.21) |
Physical work stops while the company waits for a court ruling, with no work on the asset | Suspend once the pause is extended |
Contractor insolvency, with the site closed for months | Suspend, unless substantial work on the asset continues |
The company stops work to wait for funding, tenants or a better market | Suspend: a decision, not part of the process |
Land bought for development and simply held | Never started: no capitalisation (IAS 23.19) |
Practical points
Suspension is not cessation. Capitalisation resumes when active development resumes. It ends only when substantially all the activities needed to prepare the asset are complete (IAS 23.22).
The timing of the judgement. When a pause begins, nobody knows how long it will last. Assess it with the information available at each reporting date, and document why. Once it is clear the pause is extended, the interest for the whole period of the suspension is a holding cost, not just the part after you realised.
Investment income. Interest earned on undrawn loan funds during a suspension stays in profit or loss. It reduces capitalised costs only during the capitalisation period (IAS 23.12).
General borrowings. Suspension applies to borrowing costs on general borrowings too: the expenditure on the asset is not included in the capitalisation base while development is suspended.
Impairment. A long stoppage is often an indicator of impairment in itself. If capitalised costs take the carrying amount above recoverable amount or net realisable value, the asset is written down (IAS 23.16).
For the impairment side, our CGU impairment template tests the asset or the unit it belongs to.
What to disclose
IAS 23.26 requires the amount of borrowing costs capitalised in the period and the capitalisation rate used for general borrowings. Where a suspension decision has a material effect, explain it: the judgement about whether a pause was extended is likely to be one of the judgements with the most significant effect on the financial statements. Ardgowan's note would say that capitalisation was suspended from April to August 2026 while construction was halted following the main contractor's insolvency, and that interest of €600,000 for that period was recognised in finance costs.
The audit angle
Interest capitalised during a stoppage overstates both the asset and profit, and the incentive to keep capitalising is obvious when a project is running late. Auditors compare the capitalisation schedule with site reports, progress certificates, board minutes and the construction programme, ask when work actually stopped and restarted, and test whether claimed technical work was real and aimed at completing the asset. A finding that the company kept capitalising through a long closure is often a misstatement, not a matter of opinion.
Our Audit Risk Matrix and Audit Procedure Builder help plan the work on capitalised borrowing costs.
In short
Suspend capitalisation only when active development stops and the stop is extended (IAS 23.20).
Keep capitalising through temporary delays that are a necessary part of the process, and while substantial technical and administrative work continues (IAS 23.21).
"Extended" is not defined. Judge it by length, cause, expectation, continuing activity and control of the restart, and document the judgement.
Resume when development resumes, and check the asset for impairment after a long pause.
Tools and templates
Our IAS 23 Borrowing Costs tool records each interruption with its cause, whether substantial technical or administrative work continued and whether the delay is typical for the project, applies the suspension decision day by day, and works out the amount capitalised, the capitalisation rate, the journals and the disclosure figures.
For the year-end working paper, the Borrowing costs template does the same in Excel for up to five qualifying assets: commencement, suspension and cessation by day, specific and general borrowings, the capitalisation rate, the journal, the disclosure figures and draft wording.
The IAS 23 Borrowing Costs note in the Learning Hub covers qualifying assets, commencement, suspension and cessation, with practice questions.
Ardgowan Hotels Ltd is fictional. References are to IAS 23 Borrowing Costs.
