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As 16 borrowing costs
Why in AS 16, Borrowing costs, cost of preference share capital specifically raised for construction of a qualified asset is not considered ?
Replies (4)
I think borrowing costs doesn't include preference dividend....as the borrowing costs includes interest cost, finance cost i.e processing, documentation, service costs, discount on issue of shares
amortization of ancillary cost to borrowing, amortization of
premium on repayment of deb. or bonds, exchange diff. treated as borrowing cost to the extent allowed, finance cost of finance lease
This is because preference share capital is not a borrowing. Its an Equity (with some preferential treatment).
Only borrowing costs paid on borrowings can be capitalised under AS 16. (eg. Loans, debentures, bonds, etc)
Preference dividend is not an expenditure or cost. Its only an appropriation of profits. If there is no profits, then usually no pref dividend is paid. Hence it cannot be termed as a borrowing cost and accordingly cannot be capitalised with qualifying assets.
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