Simple que on AS 16

Final 683 views 7 replies

Friends

I have a doubt on AS 16 Borrowing Cost. Plz help me -

A Co. Borrowed a Loan of1000000 for Purchase of machinery on 01.04.2010. The machinery was put to use on  30.06.2011, after 15 months. Plz tell me how much borrowing cost will be capitalised for the year 2010-11, with reasons ?

Replies (7)

Total cost of Machine+Intt up to 30.06.2011 will be capatalised.

As till 31.3.2011 u can calculate INTT only upto 31.3.2011 that will be captalised in 2010-2011 & for the balance 3 months capatlisation will be in next financial year ..

Pls correct me if i m wrong. 




i doubt whether interest can be can be capitalized.. i think machinery purchased is not a qualifying asset.. let others share their views

pooja is correct i agree with pooja

If the machine is ready to use on 1.4.10 , then it will not b qualifying asset and therefore no AS 16.. This is not Tax, it is a/c's.. In AS 16, their is no concept of Put to use, it is irrelevant...

"Friends

 

I have a doubt on AS 16 Borrowing Cost. Plz help me -

A Co. Borrowed a Loan of1000000 for Purchase of machinery on 01.04.2010. The machinery was put to use on  30.06.2011, after 15 months. Plz tell me how much borrowing cost will be capitalised for the year 2010-11, with reasons ?"


 

"AS 16 - Borrowing Costs

1.Borrowing costs are interest and other costs that an entity incurs in connection with the borrowing of funds.

 

2. A qualifying asset is an asset that necessarily takes a substantial period of time to get ready for its intended use or sale.(In Other words Assets that are ready for their intended use or sale when acquired also are not qualifying assets.)

 

 

 

Borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset should be capitalised as part of the cost of that asset.

 

Commencement of Capitalisation

14. The capitalisation of borrowing costs as part of the cost of a qualifying asset should commence when all the following conditions are satisfied:

(a) expenditure for the acquisition, construction or production of a qualifying asset is being incurred;

(b) borrowing costs are being incurred; and

(c) activities that are necessary to prepare the asset for its intended use or sale are in progress.

 

Cessation of Capitalisation

19. Capitalisation of borrowing costs should cease when substantially all the activities necessary to prepare the qualifying asset for its intended use or sale are complete."

From the above question we dont know when actually the machinery is Purchased/Acquired. And also when the machinery(Qaulifying Asset) is ready for Intended Use. (Actual put to use date of qualify Asset is irrelevant)

 

If the machine was READY TO USE ON DATE OF PURCHASE. It is not a qualifying asset and hence there should be NO CAPITALIZATION OF INTEREST. As-16 is for the assets who take substantial time to get completed for ready to use. Abhishek K. Pandey.

okay. Thanks for ur replies


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