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?
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.
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