Borrowing cost

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pragadeeshkanna

searching

133 Points Posted on 30 January 2012

Dear Frnds,

For example, When a factory is under construction for more than a year and a machinery is purchased to be installed in the said factory. for say machinery is purchased on 30.6.2011 and installed and capitalised on 30.09.2011. The factory is also capitalised on the same day. The interest paid for the loan borrowed for the construction of the factory will be capitalised till the date of capitalisation. In case of machinery, the 3 months interest paid have to be capitalised? please suggest on the above case.

Replies (2)

yash garg

student

74 Points Posted on 30 January 2012

this is the wrong treatment.

three months interest should be debit in the profit and loss account

Kolluru Krishna Murty

Partner

327 Points Posted on 03 February 2012

Sirs,

I beg to differ with the above view.

The interest incurred till the date of capitalisation including that on Machinary has to be capitalised.

The logic behind is the machinary alone cannot generate any revenue .

The guide line in AS also says" the costs incurred in bringing the asset into the present location to its working condition for its intended use"should be capitalised.

So in my view the interest on Machinary should not be looked in isolation,but should be looked with the other facilities.

kkm