N12 exam - posting 1 - accounting standards

Final 953 views 3 replies

satish

Service

901 Points Joined January 2008

Dear CA /CWA Final Students,

Here's one another initiative to give you few questions and answers per day on Various accounting standards ( It is very difficult to stay disciplined to post 1 a day :) but am going to keep it hard as a Task to help my dear students community)

About me : Passionate teacher for Finance students in Bangalore - currently teaching in small batches - FR-FM-TAX-Costing.

You can reach out to me by email : tejas @ tejas.co.in / facebook www.facebook.com/tejaslc

I will be posting the same in facebook too = so its important to follow the post and also this will be a quick revision for all standards key points on question formats.

COPY RIGHT RESERVED :) ---but free for students.

Accounting Standard 28 : Impairment Loss
Qn : Do we need to estimate Recoverable amount of an Asset at every Balance sheet date ?

Not required but it would be good to check if any asset may be impaired and then proceed to check the Net selling price Or Value in use to estimate teh Recoverable amount(Higher of NSP or Value in use) through external sources or Internal sources

Accounting Standard 10 read with AS 16 On borrowing Cost :

Qn : An industry which took a bank loan in July 2011 for construction of their new factory building completed the same in Jan 2012 and put them to use immediately. Can the interest paid on actual amount used for construction be Capitalized ?

ICAI vide ASI(Accounting Standard Interpretation 1) defines the Term Qualifying Asset as an Asset...

that necessarily takes SUBSTANTIAL PERIOD OF TIME to get ready for its intended use of its sale "

> Depends on Facts on circumstances of the case
> Generally capital expansion takes more than 12 months

So for Borrowing cost to be considered for Capitalization the asset should take longer period of time to put to use and intended use. With this as basis - Interest need not be capitalized ( considering rebuttable period as 12 months

Replies (3)

CA Ashish Pathak

Employed at Cipla Ltd.

2779 Points Joined April 2011

Thank you Sir. Really appreciate your initiative.

CA Hemang Shah

PRACTICE

658 Points Joined July 2009

What is this ?? Substantial period is not defined and so therefore it may be more or less than 12 months. What is important is capital asset and so any exps to bring present location including interest is treated is a borrowing cost and included in cost. Substantial period may be 1 day or more. But it should be for capital asset. According to me ur answer is not correct. But if icai says then for exam purpose we write according to them answer.

satish

Service

901 Points Joined January 2008

Dear Hemant

Thanks for your query.

I woudl recommend you to read Accounting Standard Interpretation - ASI 1 as well .

As per the Interpretation - Ordinarily a Period of twelve (12) months is considered as Substantial period of time unless this can be justified by the enterprise.

Hence with the above intepretation - The answer recommended for examination is to ARTICULATE that based on Facts and Circumstances fo the case given - it has to be decided if the Borrowing cost need to be captialized.

Hope this explains your query.

Regards,

Satish.

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