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Term loan -interest

11 November 2011

Hi Good Afternoon to All,

I have a doubt in Term Loan Interest, if we take term loan from Bank for construction of a Building, can we capitalize the interest portion??????

Awaiting for your valuable repies.....

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7 Replies

ashish gupta ( student) (1922 Points)
Replied 11 November 2011

As per AS-16 you can capitalise the interest portion till the date building is constructed

Ashish Ranjan (Chartered Accountant in Practice) (188 Points)
Replied 14 November 2011

i agree with Ashish. The interest potion upto the date of completion of the building should be capitalised.

Ashish Ranjan (Chartered Accountant in Practice) (188 Points)
Replied 14 November 2011

i agree with Ashish. The interest portion upto the date of completion of the building should be capitalised.

Hemanth Sai (CA-FINAL,AUDIT TRAINEE) (110 Points)
Replied 14 November 2011

of course the interest paid till the completion of the construction can be capitalized in the books of accounts as per as-16

vijaya kumar n (JOB) (488 Points)
Replied 14 November 2011

If we take Term Loan from Bank, we can use for this fund to purchase of Furniture, Payment to Interor Design Contractor and Office Equipments etc, can we capitalise the interest portion to the above Items. Pls Explain briefly and also let me know can we capitalize vehicle Loan interest.

ashish gupta ( student) (1922 Points)
Replied 14 November 2011

@ vijaya you cannot capitalise the interest on these items as these items do not take substantial time to be ready.

And you cannot capitalise the vehicle loan interest also

CA GOVIND KRISHNA AGARWAL (CA) (202 Points)
Replied 17 November 2011

As per AS-16

The following terms are used in this Statement with the meanings
specified:
Borrowing costs are interest and other costs incurred by an enterprise
in connection with the borrowing of funds.
A qualifying asset is an asset that necessarily takes a substantial period
of time to get ready for its intended use or sale.
4. Borrowing costs may include:
(a) interest and commitment charges on bank borrowings and other
short-term and long-term borrowings;
(b) amortisation of discounts or premiums relating to borrowings;
(c) amortisation of ancillary costs incurred in connection with the
arrangement of borrowings;
(d) finance charges in respect of assets acquired under finance
leases or under other similar arrangements; and
(e) exchange differences arising from foreign currency borrowings
to the extent that they are regarded as an adjustment to interest
costs .