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Bank charges on loan amount

pradnya (Article) (188 Points)

24 December 2020

loan amt received in jpy against claim raised
for work done for construction of bridge.conversion and remittance charges are deducted by bank for loan amt received.
whether this charges to be capitalized to the project cost as per as 16 or debited to profit and loss account.

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10 Replies

yasaswi gomes (My grammar is 💯 good I) (7290 Points)
Replied 24 December 2020

Follow the borrowing costs standard in AS

ayusmita (Tax consultant) (5885 Points)
Replied 26 December 2020

If it capitalised then it's follows some rules as per AS 16
read AS16

pradnya (Article) (188 Points)
Replied 26 December 2020

I don't find any rule for bank charges of recurring nature

yasaswi gomes (My grammar is 💯 good I) (7290 Points)
Replied 26 December 2020

Incremental borrowing costs means- interest

bank charges are expensed

pradnya (Article) (188 Points)
Replied 26 December 2020

It means theses are not be capitalized as it is recurring we expenses

yasaswi gomes (My grammar is 💯 good I) (7290 Points)
Replied 26 December 2020

Yes. The standard does not mention about transaction charges, the amt of costs to be capitalised minus any incomes and grants should be capitalised only. AS16.10

Then, the fixed asset standard also doesn’t have any guidelines about bank charges. So it must be expensed.

pradnya (Article) (188 Points)
Replied 26 December 2020

Standard basically tress on finance cost which is for making asset ready to use commitment charges, interest ,fees,counter part guarantee s which would have been avoided if no qualifying assets to be generated

yasaswi gomes (My grammar is 💯 good I) (7290 Points)
Replied 27 December 2020

Hi which para and send me the link of resource

pradnya (Article) (188 Points)
Replied 27 December 2020

4. Capitalization of Borrowing Cost

The following conditions should be satisfied for capitalization of borrowing costs:

a. Those borrowings costs which are directly attributable to the acquisition, construction or production of qualifying asset, are eligible for capitalization. Directly attributable costs are those costs which would have been avoided if the expenditure on the qualifying assets has not been made.

b. Qualifying assets will give future benefit to the enterprises and the cost can be measured reliably

yasaswi gomes (My grammar is 💯 good I) (7290 Points)
Replied 27 December 2020

Txs. I went through this yesterday also it can be interpreted in other ways. Eg., commencement of capitalisation starts when

expenditure incurred started on construction

Borrowing costs are incurred

activitis s to finish off the asset is underway.

your costs are initial costs, and no treatment is prescribed her.

but again, ‘Expenditure on a qualifying asset includes only such expenditure that has resulted in payments of cash, transfers of other assets or the assumption of interest-bearing liabilities.’ The interest bearing liabilities is your loan. So, you can capitalise bank charges. As 16.15