Borrowing cost and Investment

AS 826 views 3 replies
Accounting Standard 13 dealing with ‘Ac-counting for Investments’, states in para 9 that the cost of investment includes acquisition charges such as brokerage, fees and duties. Thus, even if the enterprise has borrowed funds and invested the same in the shares of the subsidiary, the interest paid on the borrowed funds cannot be considered part of the cost of investments and capitalised as part of investments. The entire interest paid on such borrowings will have to be charged to the profit and loss account. Ac-counting Standard 16 dealing with ‘Borrowing Costs’, does not treat such investments as a qualifying asset for capitalisation of borrowing costs i.e. the interest paid. The question is ‘Is it Fair’ not to capitalise borrowing costs and charge the borrowing costs to the profit and loss account as charging would invariably result in lower profits for the company since the corresponding return from the investment in the shares of the subsidiary would not accrue as the project has not yet been commissioned by the subsidiary company. This would not be strictly in accordance with the accounting concept of ‘Matching costs and revenues’.
Replies (3)

CAPITALISED ONLY WHEN THERE IS GAP BETWEEN APPLICATION FOR SHARES AND ALLOTMENT OF SHARES.

EXAMPLE :- APPLICATION MONEY PAID RS.1000000 OUT OF BORROWED FUND ON 1ST OCT,10

BUT THE ALLOTMENT WAS MADE ON 1ST FEB,11 THEN INTEREST ON BORROWED FUND OF RS.1000000 FOR FOUR MONTHS IS CAPITALISED ONLY 

Originally posted by : Rajnikant Vadigoppula

CAPITALISED ONLY WHEN THERE IS GAP BETWEEN APPLICATION FOR SHARES AND ALLOTMENT OF SHARES.

EXAMPLE :- APPLICATION MONEY PAID RS.1000000 OUT OF BORROWED FUND ON 1ST OCT,10

BUT THE ALLOTMENT WAS MADE ON 1ST FEB,11 THEN INTEREST ON BORROWED FUND OF RS.1000000 FOR FOUR MONTHS IS CAPITALISED ONLY 

AGREED.

Originally posted by : Rajnikant Vadigoppula

CAPITALISED ONLY WHEN THERE IS GAP BETWEEN APPLICATION FOR SHARES AND ALLOTMENT OF SHARES.

EXAMPLE :- APPLICATION MONEY PAID RS.1000000 OUT OF BORROWED FUND ON 1ST OCT,10

BUT THE ALLOTMENT WAS MADE ON 1ST FEB,11 THEN INTEREST ON BORROWED FUND OF RS.1000000 FOR FOUR MONTHS IS CAPITALISED ONLY 

agreed               


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