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Borrowing cost
If the borrowing cost is incurred during the current financial year and the expenditure for development of the asset(for which amount is borrowed) is incurred in the next financial year.Can the borrowing cost be deffered till the next financial year , so that it can be capitalised.
Replies (2)
Three conditions need to be fulfilled for capitalizing borrowing cost. They are
(1) Activities to prepare the Qualifying asset for its intended use ARE BEING carried out. AND
(2) Expenditure on such activities IS BEING incurred AND
(3) Borrowing cost IS BEING incurred
In view of the above you cannot capitalize the borrowing cost.
The logic behind this is you still cannot demonstrate that you are in the possession of a resource from which you can expect future economic benefits. Hence you cannot capitalize.
borrowing cost in this case cannot be capatilize because asset on which the cost is incurred should be a qualifing asset and expenditure should be incurred on such asset
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