As-16

This query is : Resolved

Ekta Jain (Querist)
Follow

30 May 2013 An Asset For Which Loan Has Taken, And The Asset Completed Within 3 months. Does It Will Be Capitalized Or Charged To Profit & Loss A/c?

Pankaj Gupta

Pankaj Gupta (Expert)
Follow

30 May 2013 Borrowing cost related to qualyfying asset should be capitalised. Qualifying asset means an asset which takes substantial period of time for getting ready. Substantial period of time means a period of 12 months. As this period of 3 months is less than 12 months therefore such cost should be charged to P&L a/c. For more read AS 16.

CMA. CS. Sanjay Gupta

CMA. CS. Sanjay Gupta (Expert)
Follow

30 May 2013 If the loan was taken specificly for that assest, borrwing cost will be capitalized.

Pankaj Gupta

Pankaj Gupta (Expert)
Follow

30 May 2013 I do not agree with the view of Mr Sanjay Gupta. As the asset itself was not a qualyfying asset, therefore there arises no issue of capitalising it. Amount should be charged to P&L only. For more clear view read AS 16.

CMA. CS. Sanjay Gupta

CMA. CS. Sanjay Gupta (Expert)
Follow

30 May 2013 A qualifying asset is an asset that necessarily takes a substantial period of time to get ready for its intended use or sale.

What constitutes a substantial period of time primarily depends on the facts and circumstances of each case. However, ordinarily, a period of twelve months is considered as substantial period of time unless a shorter or longer period can be justified on the basis of facts and circumstances of the case. In estimating the period, time which an asset takes, technologically and commercially, to get it ready for its intended use or sale is considered.

So in case loan was sepcifically for that asset and such shorter period of three months can be justified than it should be capitalized. If you want to charge the amount to PL you can do it provided the amount is not very high. Its my understanding of AS 16.

You need to be the querist or approved CAclub expert to take part in this query .
Click here to login now