Interest borrowed for acquisition of asset is capitalised .
Interest on deferred payment for acquistion of capital asset -allowed as an expense
Please explain .
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Cost of Purchase of asset
Replies (5)
Quick Summary
To be frank, deferred payments are accruals during putchases and not capitalosed. Depreciation is allowed but not the whole ppe.
Please correct my understanding if wrong
Interest borrowed for acquisition of asset is capitalized .( Capitalized - before asset put to use)
Interest on deferred payment for acquisition of capital asset -allowed as an expense (Expensed- after Asset put to use)
Deferred payment means delayed payment of interest to the bank right? Dont do that many times cause you could be facing hard capital rationing. Anyways, as long as there is no halt, you can capitalise it even if it is deferred.
Deffered payment is also a part of asset cost.
That is correct by you @ sabyasachi if the company borrows 100 for project and worked for 6 months
proprty 90
building 80
leaese30
capitalised interest 100*10%*6/12= 5
total ppe/assets=205
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