## AS 16 – When to Start, Pause, and Stop Capitalising
Capitalisation of borrowing costs does not automatically run from loan disbursement to asset completion. AS 16 specifies three control points.
---
## A. Commencement of Capitalisation
Capitalisation begins only when ALL three conditions are simultaneously satisfied:
| Condition | Detail |
|---|---|
| 1. Expenditure incurred | Money has actually been spent on the QA |
| 2. Activities in progress | Work necessary to prepare the asset has started — includes both physical work AND technical/administrative work (e.g., registration, site preparation, planning, permits) |
| 3. Borrowing cost being incurred | Interest is actually running on the loan |
> Common trap: Physical construction is not required to start capitalisation. Technical work like registration, planning, and site preparation also qualifies as "necessary activities."
---
## B. Suspension of Capitalisation
Capitalisation must be suspended during extended periods when active development is NOT taking place.
Exception – Do NOT suspend if the interruption is:
- A temporary delay that is a normal and necessary part of the construction process
- e.g., seasonal shutdowns, curing periods, mandatory inspection delays
### Example:
```
Construction start: 01.04.Y1
Strike (work stops): 01.11.Y1 – 30.11.Y1
Construction end: 31.12.Y1 (total 24 months planned)
→ Strike = extended inactive period → SUSPEND capitalisation for November
Contrast:
Bridge construction where river floods for 2 months = normal part of process
→ Do NOT suspend (temporary delay, part of normal process)
```
---
## C. Cessation of Capitalisation
Capitalisation ceases when substantially all activities necessary to prepare the QA for its intended use or sale are complete.
Key points:
- Minor pending work (e.g., decoration, minor finishing) does not delay cessation
- The test is "substantially complete," not "100% complete"
### Completion in Parts (e.g., multi-tower project)
When a QA is completed in separable parts:
- Stop capitalising on each part as soon as it is complete and can be used independently
- Continue capitalising on remaining parts still under construction
```
Example: Apartment complex with Tower A and Tower B
→ Tower A complete and habitable: STOP capitalising on Tower A
→ Tower B still under construction: CONTINUE capitalising on Tower B
```
---
## Summary Timeline
```
[Loan disbursed]
↓
[All 3 conditions met] ← START capitalising
↓
[Extended inactivity?] ← SUSPEND (unless normal process delay)
↓
[Activity resumes] ← RESUME capitalising
↓
[Substantially complete] ← STOP capitalising (each separable part)
```