As-16, borrowing costs

Dear Professionals,

We are engaged in construction of a Tollway project, for this purpose we had borrowed huge amount of funds and we have capitalised the interest on these borrowings as per AS-16.

Now since we have some excess funds so we had temporary invested them and earned some interest.

Now as per AS-16 Borrowing Costs Eligible for Capitalisation: we have to reduce the amount of interest earned from temporary investment from the interest capitalised on that borrowed funds.

but since we had capitalised all the interest paid and we have shown interest income in Profit & loss Account in earlier years also, so please suggest how we can rectify it.

Replies (1)

Ofcourse, you are correct.

Since you have already shown the interest income in P/L account, now in subsequent year, you can show the same as an expense in P/L account to reverse the effect of previous one and reduce it from the fixed asset you are constructing. Journal entry will be

Income A/c Debit

     to Fixed Asset account.--------being previously recorded income now reversed/nullified

P/L a/c debit

     to Income A/c - trf entry

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