Capitalisation of expenses

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

01 September 2012 A company had taken loan from the market & purchased land in 2010. The interest paid on loan was capitalised with the cost of land in the books of accounts. Now in 2012, the loan is still outstanding in the books & the company is paying interest on the same. Would the interest paid still be capitalised with the cost of land or would be a revenue expenditure?

CA Sumat Singhal

CA Sumat Singhal (Expert)
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01 September 2012 As per AS – 16, amount of borrowing cost should be recorded or recognized in the financial statement as follows:-

a). if any borrowing cost is incurred for qualifying assets than amount of borrowing cost should be capitalized in the cost of Q.A.

b) if any borrowing cost is not having any connection with Q.A. than such amount should be transfer to P/L a/c as an exp.
As per Accounting Standard Interpretation No. 1, substantial period of time is the period of 12 months. But longer period or short term period than specified period may also be considerable as per the interpretation issued by Institute.
SO if some activities were carried out for making land for its necessary use like construction of building then interest cost may be added..bot for year 2012 it should not be added.
expert opinions are invited.