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As 16 borrowing cost
On 1/4/2010,Company got specific loan of Rs. 1000000 @ 10% interest for purchase of machinery. but machine was not purchases at that time. Company invested the money @ 8 % in fixed deposit. On 1/7/2012 compant give advance of Rs. 250000 for purchase of qualifying asset. how much borrowing cost as per as 16 will be capitalized ?
Replies (3)
The interest earned was not exclusively linked with the purchase of assets , hence it cannot be used to reduce the cost of assets.
The interest income will be taxable under business income..u/s 28
and when amount is given to purchase assets than it must be capitalised tii date put to use.
sir, but as per as 16 interest earned for temporary period should be reduced from the borrowing cost to be capialised
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Para 10. |
To the extent that funds are borrowed specifically for the purpose of obtaining a qualifying asset, the amount of borrowing costs eligible for capitalisation on that asset should be determined as the actual borrowing costs incurred on that borrowing during the period less any income on the temporary investment of those borrowings. |
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Para 14. |
The capitalisation of borrowing costs as part of the cost of a qualifying asset should commence when all the following conditions are satisfied:
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Therefore Capitalize from 01/07/2010
Borrowing cost = 250000 *(10%-8%)X9/12= Borrowings upto Actual Expenditure x (Borrowing interest rate-Investment Income) x Period for Capitalization
This is what I understand from AS 16.
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