Forcefully argued by Iliaraja.
But I beg to differ. The working capital loan was availed of for funding current assets. As long as the current assets are there on the books of the firm it is a reasonable presumption that the proceeds of the loan are used up there and NO WHERE ELSE. The interest amounts incurred on the working capital loans are, therefore, cost of borrowings to finance the current assets and nothing else.
Extending fungibility of money can create havocs. Here is an example. A listed firm has working capital loans of a round 250 lacs. It has current assets worth over 9000 lacs. It also has shares of other listed companies worth 1500 lacs. Can we say that the firm has used up the working capital bank loan for investing in stock markets?
Moreover, firms declare the purpose of loans while availing any loan. If a loan is taken for “general corporate purposes” (a not uncommon purpose) it is reasonable to assume that the loan proceeds have been used for creating qualifying assets but not if the loan is avowedly taken for financing current assets and the firm has current assets on its books
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