As-16

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

09 October 2013 Suppose we have taken a loan of Rs. 100Cr for Capex Purpose @ 10% .

That loan could be used to the extent of Rs.75 Crs only. Rs. 25 Crs is being invested in Mutual Fund and we got a return of 15%. Then what is the Interest amount needs to be capitalised

a.) Int Cost Rs.100 Crs *10%= 10.00 Crs
Less:Income on Invt
Rs.25 Crs*15%= 3.75 Crs
Net Borrowing Cost to be = 6.25 Crs
Capitalised

b.) Int Cost on Rs. 75 Crs = 7.5 Crs.

Had it would be suppose income on investment exceeds Rs.10.00 Crs (Total Int on Borrowings) then whether this income (Net of Interest) on investment needs to be deducted from cost of Fixed Assets.

CS,CA F,Numrologi TusharSampat

CS,CA F,Numrologi TusharSampat (Expert)
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09 October 2013 The ans is option b.) int cost on Rs 75 CR=7.5Crs, investment is to be ignored for the purpose of AS16.

No need to deduct it from fixed assets.

Querist : Anonymous

Querist : Anonymous (Querist)

09 October 2013 May I know why income on Investment is not deducted from interest cost.

Why Interest income is not being deducted from Capex Cost.

CS,CA F,Numrologi TusharSampat

CS,CA F,Numrologi TusharSampat (Expert)
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10 October 2013 For that u need to refer the accounting treatment for AS16 on borrowing cost.

Secondly investment in mutual funds are no way connected to the capital exp of the asset that is why u need to give separate accounting treatment for income on investments.

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