Interest on working capital loan to be capitalized?

AS 4701 views 10 replies

CA Ashish Dodke

CA Job

24 Points Joined June 2013

Dear Friends,

please share your views on, whether interest on working capital loan can be capitalized or not if working capital loan has been used to procure particular qualifying asset?

Replies (10)

No, interest on working capital loan cannot be capitalized.

Sumit Pratap Singh

Accounts Officer

48 Points Joined September 2009

No, interest on working capital can't be capitalized.

Vikram

Article Trainee

27 Points Joined January 2013

Int. On working capital cnt be capitalized.. It should be charged to p&l a.c in respected year.

CA D R P

Chartered Accountant

313 Points Joined January 2012

YES.....

DEFINITELY ; SUCH INTEREST ON W/C CAN BE CAPITALIZED UNDER AS-16 UNDER "GENERAL BORROWINGS" BY APPLYING THE "APPROPRIATE CAPITALIZATION RATE"....

Ayyswariya RG

Knowledge Seeker

3711 Points Joined June 2009

Yes, I second DRP in the opinion that working capital loan can be capitalized. Working capital falls under general borrowings and the interest at which it should be capitalized is the weighted average rate of interest for the year.

ssp.khurana

CA IN PRACTICE

29 Points Joined July 2011

Interest on purchase of capital asset can be capitalised up to the point of puting the asset to commercial use. Working capital loan or term loan as source of funding will not alter the accepted accounting proincipals. Ssp.khurana

AKLESH KUMAR GOIT

article

36 Points Joined June 2013

Interest on on short term borrowings and long term borrowings is included under "Borrowing cost " as per AS 16.Hence, interest on working capital loan incurred in relation to any qualifying asset can be capitalized.

ABHINANDAN JAIN

CA Student

891 Points Joined August 2009

since lots of replies..so thought of asking one out of topic question..but related to the term working capital loan..

what type of loans are covered in working capital loan...whether Cash credit /OD said to be a type or category of w/cap loan..Or there is a specific type of loan which the bank offers in seperate specific name called working capital loan...?

one more doubt.. what is working capital demand loan...

Also why demand loan is prefixed with word DEMAND..why it so callked..whether it assume any feature...

CA vinod

Chartered Accountant

518 Points Joined June 2010

Expenditure should be included in the cost of inventory only to the extent that they are incurred in bringing the inventories to their present location and condition.

As per the para 12 of the AS 2 - Interest and other borrowing costs are usually considered as not relating to bringing the inventories to their present location and condition and are, therefore, usually not included in the cost of inventorie

and as per the para 5 of the AS 16 inventories that require a substantial period of time tobring them to a saleable condition are only comes under qualifying assets and those inventories that are routinely manufactured or otherwise produced in large quantities on a repetitive basis over a short period of time, are not qualifying assets.

By combined reading of the above standards we can come to a conclusion that usually interest should not be form part of the cost of inventory. Only borrowing costs incurred on those inventories require substantial period of time to bring them to saleable conditions Ex: Wine, Timber etc can be capitalized.

Bhaavna

Queen

1933 Points Joined September 2009

Originally posted by : CA vinod
	Expenditure should be included in the cost of inventory only to the extent that they are incurred in bringing the inventories to their present location and condition. As per the para 12 of the AS 2 - Interest and other borrowing costs are usually considered as not relating to bringing the inventories to their present location and condition and are, therefore, usually not included in the cost of inventorie and as per the para 5 of the AS 16 inventories that require a substantial period of time tobring them to a saleable condition are only comes under qualifying assets and those inventories that are routinely manufactured or otherwise produced in large quantities on a repetitive basis over a short period of time, are not qualifying assets. By combined reading of the above standards we can come to a conclusion that usually interest should not be form part of the cost of inventory. Only borrowing costs incurred on those inventories require substantial period of time to bring them to saleable conditions Ex: Wine, Timber etc can be capitalized.