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Accounting for interest on term loan during pre construction

3596 views 4 replies

Shashidhar Jayaraman

Principal and CFO

24 Points Posted on 06 September 2012

Wanted to understand the accounting to be done for the interest paid on term loan during the pre construction phase.

a. should the interest be capitalized with the asset and depreciated or

b. should the interest be charged off once commercial production begins or

c. should the interest be amortized separately

would appreciate advise in line with the accepted guidelines

Thanks

Shashi

Replies (4)

Manjunatha M K

Manager - Accounts

318 Points Posted on 06 September 2012

As per Accounting Standard 16 Issued by ICAI, Borrowing cost (i.e. Interest etc) incurred during preconstruction should be capitalized (treated as Cost of Asset) - Your option (a) is in line with the Accounting Standard.

For AS 16 - Borrowing Cost please visit the following link

https://www.webtel.in/Image/AS%2016.pdf

Bhaskar Unnikrishnan CPA CMA

Accounts / Administration

414 Points Posted on 06 September 2012

Basedon IRFS (Presume Indian Accoung Standard also allows same) You can capitalize and depreciate interst on loan during pre-construction stage. You cannot capitalize interst once project is completed and commercial production starts. Once commercial production starts, interst should be treated as finace expense.