banner_ad

AS-2

This query is : Resolved 
Profile Image

Profile Image

(Querist)
30 August 2009 can business organisations take into consideration Interest on loan,for valuing inventory,paid for loan taken for meeting working capital requirement involving major item as stock as in case of sugar companies.
for example.. X ltd is a sugar manufacturing company and make its sales as per the demand required by the government.However production is done only for 4-5 months a year and as sales is as per the demand of government many a times it happens that there is huge shortage of funds for raw material i.e sugarcane,so they have taken loan on which interest is to be paid.Now can the co. take in to consideration this interest amount for valuing inventory.
Profile Image

prashant bhardwaj

Profile Image

prashant bhardwaj (Expert)
31 August 2009 Inventories should be valued at the lower of cost and net realizable value.The cost of inventories should comprise

(a) all costs of purchase
(b) costs of conversion
(c) other costs incurred in bringing the inventories to their present location and condition.

The other costs are also included in the cost of inventory to the extent they contribute in bringing the inventory to its present location and condition.

Interest and other borrowing costs are usually not included in cost of inventory. However, AS-16 recommends the areas where borrowing costs are taken as cost of inventory.

AS-16
BORROWING COSTSBorrowing Costs include:
1. Interest and commitment charges on borrowings
2. Amortization of discounts or premiums relating to borrowings
3. Amortisation of ancillary costs incurred in connection with the arrangement of borrowings
4. Exchange difference arising from borrowings to the extent it amounts to interest costs.

Borrowing costs should be recognized as an expense in the period in which they are incurred.

Borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset should be capitalized as part of that asset.

Qualifying Asset is an asset that necessarily takes a substantial period of time to get ready for its intended use or sale. e.g. Heavy Plant & Machinery.
Profile Image

prashant bhardwaj

Profile Image

prashant bhardwaj (Expert)
31 August 2009 Inventories should be valued at the lower of cost and net realizable value.The cost of inventories should comprise

(a) all costs of purchase
(b) costs of conversion
(c) other costs incurred in bringing the inventories to their present location and condition.

The other costs are also included in the cost of inventory to the extent they contribute in bringing the inventory to its present location and condition.

Interest and other borrowing costs are usually not included in cost of inventory. However, AS-16 recommends the areas where borrowing costs are taken as cost of inventory.

AS-16
BORROWING COSTSBorrowing Costs include:
1. Interest and commitment charges on borrowings
2. Amortization of discounts or premiums relating to borrowings
3. Amortisation of ancillary costs incurred in connection with the arrangement of borrowings
4. Exchange difference arising from borrowings to the extent it amounts to interest costs.

Borrowing costs should be recognized as an expense in the period in which they are incurred.

Borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset should be capitalized as part of that asset.

Qualifying Asset is an asset that necessarily takes a substantial period of time to get ready for its intended use or sale. e.g. Heavy Plant & Machinery.
it means company show it as part of stock.
Profile Image

pankaj

Profile Image

pankaj (Querist)
02 September 2009 thanks
Profile Image

prashant bhardwaj

Profile Image

prashant bhardwaj (Expert)
04 September 2009 join atc group for long lasting relation
You need to be the querist or approved CAclub expert to take part in this query .
Click here to login now


CCI Pro
Join the CA Students WhatsApp Community for ICAI Updates, Trending Courses & Notes!


Similar Resolved Queries


loading


Unanswered Queries


banner

Trending Online Classes

view all classess

CCI Pro
Meet our CAclubindia PRO Members
Subscribe Now

Follow us
add to google news



Answer Query



Quick Links



Browse by Category




Latest Job Openings

View all
Company
Featured 02 May 2026
Senior Executive

hitesh chandwani & co

Pune

B.Com

View Details
Company
Featured 29 April 2026
Manager- Finance and Compliance

Naveen Fintech Pvt Ltd

Kolkata

CA Inter

View Details
Company
Featured 14 April 2026
GST CONSULTANT

Abhishek G Agrawal & Co.

Korba

CA Final

View Details
Company
Featured 13 April 2026
GST CONSULTANCY

Abhishek G Agrawal & Co.

Korba

CA Final

View Details
Company
Featured 28 March 2026
Accountant

Ashok Amol & Associates

New Delhi

B.Com

View Details
Company
Featured 28 March 2026
CA Final

Ashok Amol & Associates

New Delhi

CA Final

View Details
Company
Featured ARTICLESHIP 19 March 2026
Article Assistant

Gupta Sachdeva & Co. Chartered Accountants

New Delhi

CA Final

View Details
Company
Featured 14 March 2026
Associate CA

N N V Satish&co

Hyderabad

CA

View Details