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Hi,
Normally, when an asset is being constructed, interest on a loan taken out to finance the construction of the asset eg a power plant, is capitalized ie included in Capital Work in Progress until construction is complete. And then when construction is completed, you cease to capitalize interest, move the cost of the asset from Capital Work in Progress to Operating Assets and start charging depreciation thereon.
Is it possible that you cease to capitalize interest cost because a significant part of the project has been constructed and is ready to use but do not move that part’s cost to Operating Assets (and therefore do not charge depreciation thereon) because construction on the rest of the project is still going on.
TIA.
Hi Arun,
In most circumstances if the construction is taking place then the asset is not likely to be ready for use, so capitalisation would continue and depreciation would not have started.
It could be the case that you are constructing a business park and when you finish each of the buildings they become ready for use, so you would start to depreciate that building but not the ones that are as yet incomplete. You would also cease capitalising the interest on the completed assets.
Thanks
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