AS 16 Borrowing Costs

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

Hi,

Bank will not provide any working capital loan for construction of assets. It will provide a term loan and intt of which is eligible for catalisation.

Originally posted by : Arjit Singhal
	As per As- 16 Borrowing intt. can be capitalized if it is used for generating Capital asset  and actual payment has been made.   No Matters whether loan was taken for working capital or for anything IF AMOUNT IS USED IN GENERATION OF CAPITAL ASSET THEN IT CAN BE CAPITALIZED BUT IT SHOULD BE USED IN GENERATION OF CAPITAL ASSETS, NOT FOR WORKING CAPITAL PURPOSES   IF IT IS PARTIALLY USED IN GENERATION , THEN THAT PARTIAL PART OF INTT. CAN BE  CAPITALIZED.....

There is no stipulation as to the type of asset  to be termed as qualifying asset. The AS says that "any asset" which takes substantial period to make it useful.

please any one help me in finding out the steps for calculation of Interest .

AS-16 Borrowing cost (RTP-Final-November,12)

Q.No:3(d).The practical question provided in Financial Reporting.