Capital work-in-progress: ageing, overdue projects and getting the capitalisation date right

What CWIP is for

Capital work-in-progress holds the cost of property, plant and equipment that is not yet ready for its intended use: a building under construction, a production line being installed, a plant being commissioned. Nothing in CWIP is depreciated. The moment the asset is ready, its cost moves out of CWIP into the appropriate class and depreciation begins.

That makes CWIP a timing account, and timing is where the problems lie. A project left in CWIP after it is ready understates depreciation. A project capitalised before it is ready overstates it, and may also capitalise costs that should have been expensed. Since 2021, the Schedule III ageing schedule makes long-standing CWIP visible to every reader of the accounts.

The year-end closing guide includes a worked capitalisation from CWIP. This article is about managing CWIP through the year so that the year-end is a confirmation, not an investigation.

When does cost stop going into CWIP?

Ind AS 16 paragraph 20 says that recognition of costs in the carrying amount of an item ceases when the item is in the location and condition necessary for it to be capable of operating in the manner intended by management. AS 10 uses the same test. Three consequences are often missed:

• Ready, not used. The test is capability, not actual use. A machine that is installed and tested but idle because the order book is thin is ready for use, and should be capitalised and depreciated.
• Costs after readiness are not capitalised. Costs incurred while a capable asset is not yet used, or is operating below capacity, initial operating losses, and the costs of relocating or reorganising operations are expensed (Ind AS 16 paragraphs 20 and 21).
• Trial-run output. Under Ind AS 16 as amended by the Companies (Indian Accounting Standards) Amendment Rules, 2022, effective for annual periods beginning on or after 1 April 2022, proceeds from selling items produced while bringing an asset to its location and condition, such as samples produced during testing, and the related cost, are recognised in profit or loss, not deducted from the cost of the asset. Revised AS 10, by contrast, still includes in cost the costs of testing whether the asset is functioning properly, after deducting the net proceeds from selling any items produced during testing. So the answer depends on which framework you follow.

For Income-tax, depreciation depends on the asset being used for the business, and the half rate applies if it is put to use for less than 180 days in the year. Whether an asset that is ready but not yet used counts as put to use is a point to settle with your tax adviser.

Borrowing costs: capitalise, suspend, cease

Where a project is a qualifying asset, one that necessarily takes a substantial period of time to get ready, borrowing costs directly attributable to it are capitalised under Ind AS 23 or AS 16 (Borrowing Costs). Three rules matter for CWIP:

• Suspension. Capitalisation of borrowing costs is suspended during extended periods in which active development of the asset is interrupted. A project halted for many months while a dispute is resolved should not keep accumulating interest in CWIP.
• Cessation. Capitalisation ceases when substantially all the activities necessary to prepare the asset for its intended use are complete.
• Parts completed separately. Where parts of a project can be used while construction continues on other parts, capitalisation ceases for each part when it is complete.

On the tax side, the proviso to section 36(1)(iii) of the Income-tax Act, 1961 disallowed interest on capital borrowed for acquiring an asset for the period until the asset was first put to use, with Explanation 8 to section 43(1) adding such interest to actual cost. The Income-tax Act, 2025 applies from tax year 2026-27 with new section numbers; map the provisions with your tax adviser.

The Schedule III ageing

Schedule III requires CWIP to be shown with an ageing schedule in four buckets (less than one year, one to two years, two to three years, more than three years), separately for projects in progress and projects temporarily suspended. For projects whose completion is overdue, or whose cost has exceeded the original plan, a completion schedule is also required, showing the expected completion in the same buckets. The same requirements apply to intangible assets under development. The Schedule III disclosures article puts these in the context of the whole note.

The ageing is easy to describe and hard to produce if CWIP is one ledger account with journal entries. To produce it, you need:

• CWIP recorded by project, not as one account
• The date of each cost entry, so amounts can be aged. Confirm with your auditor the basis for ageing (for example, the date each amount was incurred) and use the same basis every year
• For each project, the original plan: approved budget and target completion date, so overdue and over-budget projects can be identified for the completion schedule
• A status for each project: in progress, temporarily suspended, or completed and awaiting capitalisation

If any of these is missing, you are reconstructing it from invoices at year-end.

A monthly CWIP routine

CWIP problems are cheaper to fix monthly than annually. A short routine for the project accountant and the project owner:

1. New costs. Check that every cost posted to CWIP belongs to a project and is directly attributable. Training, general administration and abnormal wastage do not belong in CWIP.
2. Status. Ask each project owner for status and expected completion. Mark projects temporarily suspended where work has stopped, and stop capitalising borrowing costs on them where the suspension is extended.
3. Ready for use. Ask which projects, or parts of projects, became capable of operating as intended during the month. Capitalise them from that date, with the commissioning report or handover note as evidence.
4. Overdue and over budget. Compare each project with its original plan. Flag those that are late or over cost; they will appear in the completion schedule at year-end, and they may also be an impairment indicator (see impairment indicators).
5. Abandoned work. Where a project or part of it has been abandoned, write the cost off rather than leaving it in CWIP.

Allocating common costs

Large projects carry costs that serve several assets: site preparation, project management fees, consultancy, insurance during construction. When the project is capitalised, these must be allocated to the assets created. A reasonable basis, usually the direct cost of each asset, should be documented and applied consistently. Allocate before capitalising, not after; otherwise the cost sits in the wrong class with the wrong useful life.

Splitting capitalisation

A project rarely produces one asset. A new plant becomes a building, plant and machinery, electrical installations, furniture and IT equipment, each with its own Schedule II life, and possibly components within them (see component accounting in practice). The capitalisation entry should create each asset separately with its own put-to-use date, not one asset called "new plant".

How FixedAsset Pro handles CWIP

In FixedAsset Pro, Procurement and CapEx and Financial Management record CWIP by project with vendor, material, labour, borrowing-cost and trial-run entries, support splitting, write-off and allocation of common costs, and show CWIP ageing in the Schedule III buckets along with a completion schedule report. Capitalisation is prefilled from the goods receipt or the CWIP project, goes through approval, and depreciation starts from the put-to-use date. The decision on when an asset is ready for use, and which costs qualify, stays with your finance team and auditor.

This article is general information as at October 2026, not accounting or tax advice. Readiness for use, the treatment of trial-run proceeds and borrowing-cost capitalisation involve judgement; check with your auditor and tax adviser.