Chirayuthchai TraisaengsatheanStrategic Finance for Property Development
THEN

Capitalising interest as cost (TAS 23)

Calculate the interest that can be capitalised into WIP each month, for both specific project loans and general borrowings, with a ceiling test and journal entries

CalculatorProject Accounting

Extracted from Real Estate Project Accounting Handbook · Part 3, Chapter 8: Interest under TAS 23
Example based on Chapter 8: a project loan with THB 400 m drawn at 7%, THB 100 m of undrawn funds earning 2% deposit interest, and three general loans totalling THB 400 m.

Specific project loan
THB
% per year
THB, held on deposit pending payment
% per year
General borrowings
THB, excluding the portion paid from the specific loan
THB, used as the ceiling
Company general borrowings
BorrowingAverage balance (THB)Rate %
Interest capitalisable into WIP this month–
  • Specific, net–
  • Weighted Average Rate–
  • General, after ceiling–
  • Excess over ceiling (cannot be capitalised)–
Calculation (THB/month)
Journal entries for the month
AccountDebitCredit

Results are calculations for learning purposes. The figures entered are hypothetical examples, not real project data.

How to use

  1. Enter the specific project loan amount drawn and the amount not yet spent
  2. Enter each general loan; the tool calculates the weighted average rate
  3. Enter average WIP funded by general borrowings and the interest actually paid in the month to test the ceiling

Formula

Specific = interest actually paid − interest income on undrawn loan funds
WAR = Σ annual interest ÷ Σ average principal
General = min(average WIP × WAR ÷ 12, interest actually paid)

Limitations

  • Start capitalising when expenditure is incurred, borrowing costs are incurred and activities to prepare the asset have begun. Stop when the asset is ready for sale.
  • If construction is suspended for an extended period, capitalisation must stop for that period.
  • Units that have been completed should not receive further interest.

Tools to use together