03 July 2013
AS 16 provides that borrowing costs that are directly attributable to the ACQUISITION, CONSTRUCTION, OR PRODUCTION of a qualifying asset should be capitalized as part of cost of such asset.
Now, borrowing cost for renovation of an asset-will it be capitalized? To be specific, such a renovation of an asset is neither an acquisition, construction or production, can it be a qualifying asset ??
03 July 2013
Yes it can be capitalised as per AS-16 provided it qualifies as a qualifying asset(asset that takes substantial period of time to get ready for its intended use or sale)and cost is incurred directly for the said asset.
03 July 2013
Dear expert, Sincere thanks, But I would like to confirm if what you are saying is now that the renovation shall take a substantial period ? Is that the intended use, you mean ?
04 July 2013
Yes.The whole renovation process should take a substantial period of time to get ready for its intended use.Substantial period primarily depends on facts and circumstances of each case.Ordinarily a 12 months period is considered substantial.
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