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Capitalisation

aasita (ACA) (387 Points)

23 February 2010

Can you tell me if we purchase car against loan and while taking loan for car we have incurred loan procession charges so can this be included in cost of car?or it has to be treated as revenue expenses?

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4 Replies

Puneet Mittal (Sr. Officer Accounts) (196 Points)
Replied 23 February 2010

I think it should be capitalised in the cost of car. becuase borrowing expenses directly related to car.

Regards

Puneet Mittal

Desperado (Cost And Management Accountant) (129 Points)
Replied 24 February 2010

Dear,

These charges will be capitalised, since Borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset are included in the cost of that asset. Such borrowing costs are capitalised as part of the cost of the asset when it is probable that they will result in future economic benefits to the entity and the costs can be measured reliably.

If, However, Company has the policy to recognize these charges as revenue expense then please note that Standards always overrule company's policy, if there is a contradiction in between company's policy and standards then obviously company's policy should suitably be amended to make it in line with the applicable standard.

I hope it helps.

Regards,

Desperado.

KUSHAL AGRAWAL (CA Final Student) (128 Points)
Replied 25 May 2010

generally loan preocessing charges charged by bank is not considerable unless the loan amt is very high.. it is generally considered in loan amount itself.. somehow , if some one wants to consider it as revenue expenses.. then it shuld be noted that , it shuld not be a pvt car of someone.. if company is buying cars for business purpose , it can charge it as revenue expense or capital expenses as it may deem fit