By Arun Yuvarajah, Co-Founder, Projx, a project delivery platform for leading client-side property development and capital works teams
Published on August 9, 2026
Fixed asset costs in a capital works project should be classified during delivery - not at practical completion. Under AASB 116 Property, Plant and Equipment, each cost must be attributed to a specific asset class to ensure accurate work-in-progress reporting, correct capitalisation, and a clean handover to finance. When that classification happens retrospectively, i.e. at the end of a project, you’re already on the back foot.
You're managing a capital works program and costs are coming through - architectural fees, construction invoices, professional services, fit-out. Each one gets recorded.
But recorded as what, exactly?
That's the question that separates good cost management from a scramble at the end of the project. For an accounting perspective, every cost on a capital project needs to be classified as either profit or expenditure (for the P&L), or as an asset, liability or equity (for the balance sheet).
Expenditure on property and construction projects mainly get allocated as assets in the balance sheet at the end of the project. Sometimes operating expenditure get allocated to project costs and is referred to expenses for the P&L.
Costs that relate to physical building work, plant and equipment and the professional and design fees associated with them get capitalised at the end of the project and go to the balance sheets. Operating expenses on the other hand do not get capitalised at all.
When you classify a cost against an asset class as it comes in you're creating a structured record that the finance or accounts team can work with. You're saying: this cost belongs to this asset. This is what it is and therefore this is how it will depreciate over time.
When you don't do that, you end up at practical completion with a spreadsheet full of costs and no clear way to tell finance what goes where.
In Australia, the treatment of capital project costs is governed by AASB 116 Property, Plant and Equipment, which sets out the recognition, measurement and depreciation requirements for fixed assets. For NZ readers, the equivalent is NZ IAS 16, which mirrors AASB 116 closely.
The standard requires that costs, which are directly attributable to bringing an asset to its intended location and condition, can be capitalised. Costs that don't meet that test - like ongoing maintenance or administration - need to be expensed.
Under AASB 116, a cost can only be capitalised if it meets the asset recognition criteria. That determination has to be made on a cost-by-cost basis. The earlier in the project you make those classifications, the cleaner the handover to your finance team will be.
The Department of Finance's guidance on AASB 116 makes clear that entities need to evaluate expenditure at the time it is incurred, and not retrospectively. And that’s what good capital works project controls need to support.
An asset class is a group of assets that share the same nature and accounting treatment. In a capital works context, the most common classes include:
Buildings: Structures owned and used in operations
Plant and equipment: Machinery, tools, vehicles
Furniture and fixtures: Fit-out items, shelving, display
Intangibles: Software, patents, licences
Land: The one asset that is never depreciated
Each class carries its own depreciation method and useful life. That matters because the depreciation schedule for a building is completely different from the schedule for a piece of machinery or a software licence. If you get the classification wrong, the depreciation that flows from it will be wrong too, compounding over the life of the asset.
At a project level, this means every cost needs to be tagged correctly from the start - as invoices come in and contracts are administered.
While a project is underway, costs don't yet belong to a fixed asset on the balance sheet. They sit in a Capital Work in Progress (CWIP) account. This is essentially a holding place for costs that will eventually be capitalised when the asset is ready for use.
That CWIP account needs to be structured. It’s not just a bucket where project costs accumulate.
For more on how committed and forecast costs interact during project delivery, see our piece on real and unreal numbers in project cost management.
Think about what happens at practical completion when the account isn't structured. Someone - usually a finance team member who wasn't involved in the project or a quantity surveyor - has to go back through months or years of costs and figure out what belongs where.
That's where errors creep in. Costs get capitalised that should have been expensed. Assets get depreciated on the wrong schedule. The balance sheet carries inaccurate values.
The same problem exists across a program of works. If you've got 15 projects running at once, each with its own cost data sitting in separate files, there's no consistent way to understand your WIP position across the program. Finance asks: "What's our total WIP exposure across the capital program right now?" And the answer takes days to pull together, if it comes together accurately at all.
Most accounts payable and financial systems are built around known numbers. Purchase orders. Invoices. Approved expenditure. They handle what's real.
They don't handle the classification question particularly well, because that's a usually sits with the project deliver team (not the accounts payable team).
For instance, a cost comes through. It gets coded to a cost centre. Maybe it gets a general ledger code. But it doesn't get classified against an asset class, because that's not something the financial system prompts you to do during the project. It prompts you to do it at the end when the asset needs to be capitalised.
But by then, the detail is gone. The project manager who knew what that cost was for has moved on to the next project. The contract documents are in a folder somewhere. The variation that changed the scope changed how the cost should be classified - and that happened six months ago.
So finance does its best. And the numbers that flow from it are technically recorded, but not accurately classified. And that inaccuracy compounds every year through depreciation.
The problem isn't that teams don't understand asset classification. Most project managers and finance teams understand the concept.
The problem is that the tools they're using don't create a structured environment where classification can happen consistently, in real time, during the project.
Projx allows project teams to classify asset codes against project costs throughout the project lifecycle. Not at the end but during delivery, as costs are recorded.
That means:
During the works, finance has an accurate WIP position. Not a rough estimate but a structured, real-time view of what's been spent and against which asset classes.
At practical completion, the capitalisation work is largely done. Costs are already tagged to the right asset classes. Finance isn't starting from scratch.
For more on what needs to be in place at practical completion, see practical completion in Australian property development and capital works.
Over the life of the asset, depreciation is applied to correctly classified assets on the right schedules. The errors that compound silently over years don't get made in the first place.
The teams using Projx aren't large organisations with dedicated asset accountants and BI teams. They're capital works managers and property developers who need a structured framework without having to build it themselves. Projx provides a structured dataset with cost codes, asset classifications, and project controls built in. And that means your data is consistent, it aggregates cleanly, and finance can actually work with it.
That's the value. Not just at a project level, but at every level.
Under AASB 116, costs that can be capitalised include the purchase price of the asset, costs directly attributable to bringing the asset to its intended location and condition (such as professional fees, construction costs, and installation), and the initial estimate of dismantling costs. Costs that cannot be capitalised include ongoing maintenance, administration costs, and costs incurred after the asset is operational. Each cost needs to be assessed individually against the recognition criteria.
Project costs should be capitalised when the asset recognition criteria under AASB 116 are met. Specifically, when it is probable the cost will generate future economic benefit and the cost can be measured reliably. In practice, costs accumulate in a Capital Work in Progress (CWIP) account during delivery and are transferred to fixed assets when the asset is available for use. The classification against the correct asset class should happen at the time costs are recorded, not retrospectively.
Capital Work in Progress (CWIP) is a balance sheet account that holds the accumulated costs of an asset under construction or development. These costs cannot yet be recognised as a fixed asset because the asset isn't yet complete or available for use. Once the asset reaches practical completion and is available for its intended purpose, the CWIP balance is transferred to the appropriate fixed asset class and depreciation begins.
Construction costs need to be allocated to the appropriate asset class - such as buildings, plant and equipment, or furniture and fixtures - based on the nature of the cost and what the cost relates to. Each asset class carries its own depreciation method and useful life, so the classification needs to be accurate from the start. The most reliable approach is to classify costs at the time they're recorded, using a structured cost framework that maps to your asset register categories.
For more on how Projx supports cost forecasting and budget management across property development and capital works programs, see how owner-side project teams use Projx
Last updated on August 23, 2026
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