As 16 under financial reporting
This query is : Resolved
11 October 2014
Interest related to purchase of machinery and interest related to advance paid to supplier for purchase of truck, to be debited to profit n loss account or to be capitalised?
11 October 2014
Hi,
As per the AS-16/IAS 23, scope for capitalization of interest is allowed if the asset is "qualifying assets".
A qualifying asset is an asset that takes a substantial period of time to get ready for its intended use or sale. [IAS 23.5] That could
be property, plant, and equipment and investment property during the construction period, intangible assets during the development
period, or "made-to-order" inventories. [IAS 23.6]
Conclusion - In your case, truck is ready to use asset and therefore its not qualifying asset. So, the interest should be debited to PL account.
Thanks,
CA. Sanjeev Kumar
As per the AS-16/IAS 23, scope for capitalization of interest is allowed if the asset is "qualifying assets".
A qualifying asset is an asset that takes a substantial period of time to get ready for its intended use or sale. [IAS 23.5] That could
be property, plant, and equipment and investment property during the construction period, intangible assets during the development
period, or "made-to-order" inventories. [IAS 23.6]
Conclusion - In your case, truck is ready to use asset and therefore its not qualifying asset. So, the interest should be debited to PL account.
Thanks,
CA. Sanjeev Kumar
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