Substantial completion

Learning objectives

• Determine the date on which capitalisation ceases (substantially all the activities necessary to prepare the asset are complete) and the transfer to the asset in use.L2, L3
• Justify and defend in a professional file (L4) the treatment adopted for the "Cessation when substantially all activities are complete" concept, distinguishing the IFRS requirement, the case data, the teaching assumption and judgement.L4

Normative references

• IAS 23 §22Capitalisation ceases when substantially all the activities necessary to prepare the asset are complete.
• IAS 23 §23An asset is normally ready for its intended use or sale when its physical construction is complete, even though routine administrative work might still continue; if only minor modifications remain (such as decoration to the purchaser's or user's specification), substantially all the activities are complete.

Original summaries of the paragraphs (reference register), never a quotation of the standard.

3 questions

• When does capitalisation of borrowing costs cease for a qualifying asset?L2
• Garance's plant is ready for its intended use: substantially all the preparation activities are complete. The cumulative cost in assets under construction comprises {construction_expenditure} of construction expenditure and {capitalised_borrowing_costs} of capitalised borrowing costs. Record the entry for entry into service.L3
• Marsac's plant, whose construction expenditure amounts to {construction_expenditure}, is financed in part by a specific loan of {principal} at {annual_rate} a year, drawn on 1 January. Substantially all the preparation activities are complete on 31 October. The year ends on 31 December: {months_until_completion} of capitalisation, then {months_after_completion} after completion. No funds are temporarily invested. Calculate the borrowing costs capitalised, those expensed, then the cost of the asset.L4