Query on AS 16

AS 681 views 9 replies

Guest

hey ppl,

I have a query on AS 16 . . regarding calculation of borrowing cost to be capitalized with respect to general borrowings.

As per clause 12 of AS 16 it says :

For any general borrowing

Step 1: Compute capitalization rate (i.e)

Weighted avg rate of all general borrowings (Less) Any specific borrowings

Step 2 : Calculate interest to be capitalized by charging this interest rate on the "Expenditure Incurred on this Asset"

Now my question is :

Should the total expenditure on asset include CENVAT/VAT/Service tax if any or

it should be excluding the above components(i.e. the value of the asset actually capitalized) Since it is not a expenditure and subsqtly credit can be availed for the same. .

Kindly help

Regards

Kaushik

Replies (9)

Deepesh Jain

C.A (May 11 Batch)

104 Points Joined November 2008

U should capitalise the interest on the amt u utilised for bringing the asset in a stage frm where commercial production may b started

Guest

so does that mean we should include the CENVAT/VAT portion of the expenditure ?!?!?!?

CA Anshu Agarwal

B€ @LW@¥$ ]-[@Pp¥

1832 Points Joined March 2009

cost of an fixed asset include the duties and other taxes if it is not refundable subsquently.

if such taxes are being capable to be refunded, they shall not be included in the expenditure incurred on capital asset for the purpose of AS-16 also.

Guest

thanks anshu but is there any notification or circulars etc to substantiate the above stand . . . jus to share it with my client . .

CA Anshu Agarwal

B€ @LW@¥$ ]-[@Pp¥

1832 Points Joined March 2009

no notification or circular about same.

but it can be understood in accordance with AS-2 and AS-10

SUDHIR & PRADEEP JI

CA FINAL+LLB + DISA

2299 Points Joined March 2010

absolutely no sir

D Sriram

articled asst

21 Points Joined March 2010

can as-2 and as-10 override the provisions of as-16?

CA Anshu Agarwal

B€ @LW@¥$ ]-[@Pp¥

1832 Points Joined March 2009

no AS overrides each other,

but where one AS is silence in any matter, same can be understood with reference to another AS.

However, where an AS specifically deals sone matter, another AS shall not apply on that matter

shakuntala chhangani

FCA Course co-ordinator WIRC coaching c

2525 Points Joined October 2009

Friends, if we go as per AS 16 which relates to capitalisation of borrowing costs, it says "exp incurred on qualifying assets". Anything that can not be capitalised as cost of qualifying asset can not be said to be exp incurred on that asset. In that sense we need to refer to As 2 and AS 10 as rightly said by Anshu Agarwal. There is no question of overriding provisions as for cost of inventory or cost of fixed assets AS 2 and AS 10 are specifially meant. AS 16 just tells us about how much borrowing cost can be capitalised. The capitalisation rate will be applied on cost of qualifying asset as per AS 2 or 10 as the case may be.

Regards, CA Shakuntala Chhangani