Hi,
I am on an assignment at an Infra financing NBFC which is using an application provided by one of India's leading & largest IT companies.
From what we all have learned, Capitalisation "In accounting, it is where costs to acquire an asset are included in the price of the asset.
Read more: https://www.investopedia.com/terms/c/capitalization.asp#ixzz1qQZAqxbx" - Ref. Investop
Now my query here is,
1. The application uses "Intersest Capitalisation" as the word for "Interest Demand" on due date, which the borrower is liable to pay.
2. It also has another internal transaction of "Interest Demand" and on the due date the same is "Interest Capitalised".
3. The NBFC has accepted this as a practice & I fail to understand how a lender would "Capitalise" the interest due. It becomes difficult at times to comprehend what we are referring to when analysing the Repayment Schedule or considering the a/c for NPA and other transactions.
Please help. Is this the correct way of using "Interest Capitalisation"?
Any help will be appreciated.
CAclubindia
