Construction In Progress
Capitalized Costs of Assets Under Construction
Construction In Progress (CIP), also known as Assets Under Construction or Work In Progress (for fixed assets), represents the accumulated costs of long-term assets that are in the process of being built, developed, or assembled but are not yet complete or ready for use. These costs are capitalized on the balance sheet as a non-current asset rather than expensed immediately, in accordance with the matching principle.
What Is Construction In Progress?
Construction In Progress is a temporary holding account for costs incurred on self-constructed or major improvement projects for property, plant, and equipment (PP&E).
Once the asset is substantially complete and ready for its intended use, the accumulated costs are transferred from CIP to the appropriate fixed asset category (e.g., Buildings, Machinery).
No depreciation is charged on CIP—depreciation begins only after transfer to completed assets.
Costs Included in CIP
- Direct materials and labor
- Contractor and subcontractor fees
- Architectural, engineering, and design costs
- Permits, licenses, and inspection fees
- Overhead directly attributable to the project
- Interest on borrowings specifically for the project (qualifying assets under IAS 23/ASC 835)
General overhead is usually not capitalized unless clearly allocable.
Accounting Treatment
Capitalization process:
- Debit Construction In Progress for all qualifying costs
- Credit Cash, Payables, or Interest Payable as incurred
- Continue until asset is ready for use
- Upon completion: Debit completed asset (e.g., Buildings), Credit Construction In Progress
Capitalization stops when asset is substantially complete, even if minor work remains.
Balance Sheet Presentation
Shown under non-current assets / Property, Plant and Equipment as:
- 'Construction In Progress'
- 'Assets Under Construction'
- 'Capital Work In Progress (CWIP)'
- Separate line within PP&E section
Often disclosed with major project details in footnotes.
Why Companies Have Significant CIP
- Major expansion or new facility construction
- Large equipment fabrication or installation
- Infrastructure projects (utilities, mining, oil & gas)
- Technology/system implementation treated as fixed asset
- Growth phase with heavy capital expenditure
Analytical Implications
CIP balances provide insight into:
- Future productive capacity (growth indicator)
- Capital expenditure intensity
- Project execution timeline (long-held CIP may signal delays)
- Upcoming depreciation increase upon completion
- Cash flow demands during construction
Prolonged high CIP without transfers may indicate project overruns or impairments.
Key Takeaways
Construction In Progress holds capitalized costs of incomplete fixed assets.
Includes direct costs, overhead, and qualifying interest.
No depreciation until transferred to completed PP&E.
Signals future capacity additions and capex execution.
High or stagnant balances warrant scrutiny for delays.
Common in capital-intensive industries during growth phases.
Construction In Progress
Capitalized Costs of Assets Under Construction
Construction In Progress (CIP), also known as Assets Under Construction or Work In Progress (for fixed assets), represents the accumulated costs of long-term assets that are in the process of being built, developed, or assembled but are not yet complete or ready for use. These costs are capitalized on the balance sheet as a non-current asset rather than expensed immediately, in accordance with the matching principle.
Table of Contents
What Is Construction In Progress?
Construction In Progress is a temporary holding account for costs incurred on self-constructed or major improvement projects for property, plant, and equipment (PP&E).
Once the asset is substantially complete and ready for its intended use, the accumulated costs are transferred from CIP to the appropriate fixed asset category (e.g., Buildings, Machinery).
No depreciation is charged on CIP—depreciation begins only after transfer to completed assets.
Costs Included in CIP
- Direct materials and labor
- Contractor and subcontractor fees
- Architectural, engineering, and design costs
- Permits, licenses, and inspection fees
- Overhead directly attributable to the project
- Interest on borrowings specifically for the project (qualifying assets under IAS 23/ASC 835)
General overhead is usually not capitalized unless clearly allocable.
Accounting Treatment
Capitalization process:
- Debit Construction In Progress for all qualifying costs
- Credit Cash, Payables, or Interest Payable as incurred
- Continue until asset is ready for use
- Upon completion: Debit completed asset (e.g., Buildings), Credit Construction In Progress
Capitalization stops when asset is substantially complete, even if minor work remains.
Balance Sheet Presentation
Shown under non-current assets / Property, Plant and Equipment as:
- 'Construction In Progress'
- 'Assets Under Construction'
- 'Capital Work In Progress (CWIP)'
- Separate line within PP&E section
Often disclosed with major project details in footnotes.
Why Companies Have Significant CIP
- Major expansion or new facility construction
- Large equipment fabrication or installation
- Infrastructure projects (utilities, mining, oil & gas)
- Technology/system implementation treated as fixed asset
- Growth phase with heavy capital expenditure
Analytical Implications
CIP balances provide insight into:
- Future productive capacity (growth indicator)
- Capital expenditure intensity
- Project execution timeline (long-held CIP may signal delays)
- Upcoming depreciation increase upon completion
- Cash flow demands during construction
Prolonged high CIP without transfers may indicate project overruns or impairments.
Key Takeaways
Construction In Progress holds capitalized costs of incomplete fixed assets.
Includes direct costs, overhead, and qualifying interest.
No depreciation until transferred to completed PP&E.
Signals future capacity additions and capex execution.
High or stagnant balances warrant scrutiny for delays.
Common in capital-intensive industries during growth phases.
Related Terms
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