26 September 2011
hi all.. I have 2 queries..kindly help me to solve those..suppose, i had to manufacture a plant for my use and so i arrange one manufacturer for it. on 1 april 2010 it was started and by 30 sep 2011 it was about to be completed. The manufacturer manufactured the plant on 1/4/2011 ie. plant is complete but at the time of testing it was found that it is not as per our specification ie. its capacity is only 40% whereas it was agreed to manufacture the plant having the capacity of let suppose 60%. and i did not make any payment to manufacturer. also it was the general loan. Kindly advice me that if i have not paid any interest on any loan but it was due during the year, whether this interest can be capitalized which was not paid during the year 10-11?? and other case in this is whether this is a suspension of borrowing cost for current period or not? and interest can be capitalised or not in this period? please help..
27 September 2011
Yes as per AS - 16 "Borrowing cost, you can capitalize such expenses, and also as per tax laws. You are booking expenses as per merchantile basis not on cash basis
27 September 2011
I forgot to mention that i want answer as per IAS.Is there any change in IAS regarding this? I have read somwhere that only cash payments are taken into consideration in IAS.Also let me know about the suspension for capitalization in this question. Thanks in advance bro.
28 September 2011
Bro as per Ind AS 23 Borrowing Cost draft which is about to be implemented, there is no such provision that u r reqd. to capitalize only on actual payment.
28 September 2011
It says that u r reqd. to capitalize the borrwowing cost as and when you incurred the cost. Incurred includes undertaking of liability for the expenses irrespective of whether it is paid in cash at the same time or not
Suspension of capitalisation 20 An entity shall suspend capitalisation of borrowing costs during extended periods in which it suspends active development of a qualifying asset. 21 An entity may incur borrowing costs during an extended period in which it suspends the activities necessary to prepare an asset for its intended use or sale. Such costs are costs of holding partially completed assets and do not qualify for capitalisation. However, an entity does not normally suspend capitalising borrowing costs during a period when it carries out substantial technical and administrative work. An entity also does not suspend capitalising borrowing costs when a temporary delay is a necessary part of the process of getting an asset ready for its intended use or sale. For example, capitalisation continues during the extended period that high water levels delay construction of a bridge, if such high water levels are common during the construction period in the geographical region involved.
28 September 2011
As per para 20 suspension of capialisation of borrowing cost is made only when there is suspension of development of asset, but in your case there is no suspension but only extension of construction period
28 September 2011
However, an entity does not normally suspend capitalising borrowing costs during a period when it carries out substantial technical and administrative work.
therefore no suspension is reqd., you can capitalise during the extended period
CAclubindia
