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Interest Capitalisation for under constructed building

AS 1294 views 1 replies

SWAPNIL

Audit Assisstant

76 Points Joined December 2010

Dear All,

There is a commercial building consisting of 10 floors of which first 4 floors have been constructed and ready to use/sale.

The client has taken a loan for the said assets.

My question is, whether interest on said loan should be capitalized in full or there should be a segregation as regard to the completed floors. whether completed floors should be regarded as Independent assets?

If it is so then the interest should not be capitalised in full and only for remaining 6 floors should be capitalised As per As-16 read all together with As-10.

Comments awaited....

Replies (1)

Dhawal Mohnot

Practicing

449 Points Joined October 2009

Loan has been obtained to construct the whole building and not in tranches for a particular floor.

The proceeds sanctioned has been utilised by the developer for the purpose of construction only and not for anything else. Until and unless any contrary is proved the said interest cost can be capitalised. In my opinion intention of the management should also be considered, whether they intend to complete the remaining 6 floors as well.