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Interest expenses on term loan of period pre-commencement

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Rakesh Jain

Article Assistant

22 Points Posted on 27 July 2015

Hello,

What is Treatemrnt of Interest Expenditure incurred on term loan taken for the purchases of fixed assets between the period of commencement of loan and actual commencement of production in case of Partnership firm.

(for e.g. ABC, a newly incorporated partnership firm taken a loan for purchasing of P&M on dec. 2014, actual production was start from May, 2015. During the period of dec. to march, firm has paid only interest to the bank. now, whether interest exp. between this period will be capitalised or it could be claim as revenue expenditure.

you could also revert your answer at rakeshbardia4u @ gmail.com

Thanks in advance

Replies (1)

Rajagopalakrishnan R

PARTNER

1145 Points Posted on 27 July 2015

The Accountinng principle is the same for any entity including a partnership firm and would be governed by the AS on Borrowing Costs.AS 16: The interest for the period prior to commemcement of Commercial production should be capitalised along with the cost of the asset. Refer AS 16 for more detailed discussion. This treatment also has approval under Income tax.