Cost of Purchase of asset

Interest borrowed for acquisition of asset is capitalised .

Interest on deferred payment for acquistion of capital asset -allowed as an expense

Please explain .

Replies (5)
Quick Summary
This discussion clarifies the accounting treatment of interest incurred during the acquisition of capital assets. Generally, interest is capitalised before an asset is put to use. However, interest on deferred payments for capital assets can be expensed after the asset is in use. Deferred payments are considered part of the asset's total cost.

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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