Interest payable as decided in arbitration

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Padma (Querist)
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23 July 2008 Hi guys,

I have one quey, if any of you can please help:

We have constructed an asset in say 1998, for say Rs. 75 lacs, there was a dispute with the contracter regarding the cost of construction. The case was taken for arbitration and consequently in 2008 final decision came up, and we have to pay 10 lacs to the contracter for the asset alongwith Rs. 10 lac as interest. In total we are paying 20 lacs. Rs. 10 lac paid against cost of construction to the contracter will be capitalised (no doubt ). The question is regarding the treatment of Rs.10 lac paid as interest. whether it be capitalised or taken in P/L? How and as per which AS?

Thanks and Regads,
Padma

S.Srinivasaraghavan

S.Srinivasaraghavan (Expert)
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23 July 2008 The interest is on account of delayed payment of money to the contractor. This can not be capitalised. The asset has already come into existence.

Padma

Padma (Querist)
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23 July 2008 Based on which AS, interest cost to be taken to p/L? Please cite relevent text.

S.Srinivasaraghavan

S.Srinivasaraghavan (Expert)
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23 July 2008 AS 16 see para 19-22

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