My client took a term loan which is long term in nature for purchase of various asset.
he is periodically paying interest on it and the asset is put to use on the date of sanction of loan.
My query is that what should be the treatment of interest in his accounts. whether to be capitalised or revenue.
Application of AS-16
Interest to be capitalised if it is a qualifying asset date reckoned from project commencement date ie from ground breaking cermony and upto the date of commencement of Commercial production
and the interest for the period after commencement of commercial production is revenue in nature and to be expensed
its a running business. they took the loan and parallely started using asset. no date difference in put to use and ready to use.
Dear Madam
Capitalisation comes for qualifying assets .Qualifying assets are one which takes substantial period of time for completion which is not defined generally presumed 12 months .Normally plant and machinery and buildings will qualify for such capitalisation in the case of running business I am of the view that entire interest is of revenue nature and need to be expensed
Interest will be treated as revenue expenditure since the asset is not a qualifying asset under AS-16.
CAclubindia
