Capitalization of Borrowing Cost on Land as per Ind AS 23: Borrowing Costs

CA Rahul Agarwal | Last updated: 08 September 2025

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Under Ind AS 23, borrowing costs directly attributable to the acquisition, construction, or production of a qualifying asset can be capitalised. A qualifying asset is one that requires a substantial period to prepare for its intended use or sale. When land is acquired for building construction, and this process takes a significant amount of time, the borrowing costs incurred on the land development can be capitalised as part of the asset's cost. Capitalisation ceases when substantially all activities necessary to prepare the qualifying asset for its intended use or sale are complete.

Question Can the borrowing costs incurred on funds used to purchase and develop land for the construction of a building for its use or sale be capitalized as part of the cost of the land? Solution As per Ind AS 23: Borrowing cost Paragraph 3.2: A qualifying asset is an asset that necessarily takes a substantial period to get ready for its intended use or sale. Paragraph 6: Borrowing costs may include: Interest expense calculated using the effective interest method as described in Ind A

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About the Author

CA Rahul Agarwal

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I am a qualified Chartered Accountant since June 2022, currently working in the healthcare industry with over three years of experience. With a strong foundation in finance, I am deeply passionate about financial management, reporting, and analysis. Beyond my professional journey, I am a financial enthusiast with a ke ... Read more

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