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As-16, borrowing costs

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Etesh Agarwal

Semi-Qualified CA

22 Points Posted on 22 January 2014

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)

CA Saurav Somani

CA - practice

4232 Points Posted on 04 February 2014

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