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Simple que on AS 16

CA Sahil Singla.. (Service Tax ) (3746 Points)

23 September 2011

Friends

I have a doubt on AS 16 Borrowing Cost. Plz help me -

A Co. Borrowed a Loan of1000000 for Purchase of machinery on 01.04.2010. The machinery was put to use on 30.06.2011, after 15 months. Plz tell me how much borrowing cost will be capitalised for the year 2010-11, with reasons ?

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(Guest)

Total cost of Machine+Intt up to 30.06.2011 will be capatalised.

As till 31.3.2011 u can calculate INTT only upto 31.3.2011 that will be captalised in 2010-2011 & for the balance 3 months capatlisation will be in next financial year ..

Pls correct me if i m wrong.

1 Like

sumit jain (.) (844 Points)
Replied 23 September 2011

i doubt whether interest can be can be capitalized.. i think machinery purchased is not a qualifying asset.. let others share their views

Jagjeet singh sahney (CA) (70 Points)
Replied 23 September 2011

pooja is correct i agree with pooja

Sachin (student) (214 Points)
Replied 23 September 2011

If the machine is ready to use on 1.4.10 , then it will not b qualifying asset and therefore no AS 16.. This is not Tax, it is a/c's.. In AS 16, their is no concept of Put to use, it is irrelevant...

Suresh G (Final Student) (272 Points)
Replied 23 September 2011

"Friends

I have a doubt on AS 16 Borrowing Cost. Plz help me -

"AS 16 - Borrowing Costs

1.Borrowing costs are interest and other costs that an entity incurs in connection with the borrowing of funds.

2. A qualifying asset is an asset that necessarily takes a substantial period of time to get ready for its intended use or sale.(In Other words Assets that are ready for their intended use or sale when acquired also are not qualifying assets.)

Borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset should be capitalised as part of the cost of that asset.

Commencement of Capitalisation

14. The capitalisation of borrowing costs as part of the cost of a qualifying asset should commence when all the following conditions are satisfied:

(a) expenditure for the acquisition, construction or production of a qualifying asset is being incurred;

(b) borrowing costs are being incurred; and

Cessation of Capitalisation

19. Capitalisation of borrowing costs should cease when substantially all the activities necessary to prepare the qualifying asset for its intended use or sale are complete."

From the above question we dont know when actually the machinery is Purchased/Acquired. And also when the machinery(Qaulifying Asset) is ready for Intended Use. (Actual put to use date of qualify Asset is irrelevant)

CA. Abhishek K. Pandey (Manager (Advance)) (901 Points)
Replied 23 September 2011

If the machine was READY TO USE ON DATE OF PURCHASE. It is not a qualifying asset and hence there should be NO CAPITALIZATION OF INTEREST. As-16 is for the assets who take substantial time to get completed for ready to use. Abhishek K. Pandey.