Accounting for Abandoned Projects and Construction in Progress Write-Offs

✦ When a capital project is abandoned, companies must stop capitalizing costs and assess whether any amounts should be written off.

✦ Under ASC 360, abandonment represents an impairment trigger requiring evaluation of recoverability and potential loss recognition.

✦ Remaining construction-in-progress (CIP) balances that provide no future benefit must be expensed immediately.

✦ Clear documentation, impairment testing, and disclosure are essential for proper treatment.

1. Identifying Abandoned or Terminated Projects

✦ Abandonment occurs when a construction or development project is discontinued before completion and will not be resumed.

✦ Common causes:

 • Changes in business strategy

 • Regulatory or environmental issues

 • Economic infeasibility or budget cuts

✦ Once abandonment is probable, stop capitalizing further costs.

2. Ceasing Capitalization of Costs

✦ Capitalization under ASC 360-10-05 is permitted only while assets are under construction and expected to be used.

✦ When abandonment is determined:

 • Suspend accrual of additional costs to CIP

 • Reclassify ongoing costs to expense

Entry (ongoing costs after abandonment):

debit Expense – $X

 credit Accounts Payable / Cash – $X

3. Evaluating Impairment

✦ Treat abandonment as an impairment indicator under ASC 360-10-35.

✦ Perform recoverability test:

 • Compare undiscounted future cash flows to carrying value of CIP

 • If not recoverable → measure impairment loss = Carrying value – fair value

✦ If asset has no alternative use, write off entire balance.

4. Journal Entry — Full Write-Off of CIP

Example:

• CIP balance = $500,000

• Fair value = $0 (no future use)

Entry:

debit Impairment Loss – $500,000

 credit Construction in Progress – $500,000

5. Partial Abandonment

✦ If only part of a project is abandoned:

 • Allocate CIP costs based on physical or functional segmentation

 • Impair only the discontinued component

✦ Maintain CIP balance for the portion that continues toward completion.

6. Reclassification of Remaining Costs

✦ If any remaining costs relate to reusable assets, reclassify to other asset accounts:

 • Land improvements

 • Salvageable equipment or materials

Entry:

debit Equipment – $50,000

 credit Construction in Progress – $50,000

7. Disclosure Requirements

✦ Disclose the nature and reason for abandonment

✦ Amount of impairment loss and assumptions used

✦ Impact on income statement and asset balances

✦ Any costs reclassified or retained for future use

✦ Update property disclosures in footnotes

8. IFRS Comparison (IAS 36 / IAS 16)

Topic	US GAAP (ASC 360)	IFRS (IAS 36 / IAS 16)
Abandonment as impairment trigger	Yes	Yes
Impairment testing	Based on undiscounted cash flows	Based on recoverable amount
Write-off of unusable assets	Required	Required
Disclosure	Required	Required

ù9. Common Errors

✦ Continuing to capitalize costs after project abandonment

✦ Failing to recognize full impairment when no alternative use exists

✦ Misclassifying reusable components instead of reclassifying them properly

✦ Omitting disclosures related to abandonment decisions

✦ Not documenting management’s basis for terminating the project