FinTech Glossary

Meaning

A qualifying asset under Ind AS 23 is an asset that necessarily takes a substantial period of time to get ready for its intended use or sale. The concept matters because borrowing costs directly attributable to acquiring, constructing or producing such an asset may need to be capitalised as part of the asset’s cost instead of being immediately expensed.

In simple terms, if a company borrows funds to build or produce a long-duration asset, the related borrowing cost may become part of that asset’s carrying amount until the asset is ready for use or sale.

Accounting Context

Ind AS 23 deals with borrowing costs. It requires eligible borrowing costs to be capitalised when they are directly attributable to the acquisition, construction or production of a qualifying asset. Other borrowing costs are generally recognised as an expense in the period in which they are incurred.

Examples of assets that may qualify, depending on facts and circumstances, include:

• Manufacturing plants

• Power generation facilities

• Large infrastructure projects

• Certain inventories that take a long time to produce

• Investment properties under development

• Intangible assets under development

Assets that are ready for use or sale when acquired generally do not qualify.

When Capitalisation Starts and Stops

Borrowing cost capitalisation usually starts when three conditions are met:

• The entity incurs expenditure for the asset.

• The entity incurs borrowing costs.

• The entity undertakes activities necessary to prepare the asset for use or sale.

Capitalisation generally stops when substantially all activities necessary to prepare the asset for its intended use or sale are complete. If work is suspended for an extended period for avoidable reasons, capitalisation may also need to be suspended.

This requires judgement, documentation and coordination between finance, projects, procurement and audit teams.

Why It Matters for Businesses

Qualifying asset assessment affects profit, asset value, depreciation and audit reporting.

Why it matters:

• Capitalising borrowing costs increases asset cost instead of immediately reducing profit.

• It affects EBITDA, profit before tax and future depreciation.

• Incorrect treatment can create audit qualifications or financial restatements.

• Project finance teams need clear tracking of loan use, construction timelines and eligible costs.

• Investors and lenders may review capitalised interest to understand true project economics.

For businesses building large assets, Ind AS 23 is not just an accounting rule. It directly affects financial statements, ratios and stakeholder confidence.