30 August 2009
can business organisations take into consideration Interest on loan,for valuing inventory,paid for loan taken for meeting working capital requirement involving major item as stock as in case of sugar companies. for example.. X ltd is a sugar manufacturing company and make its sales as per the demand required by the government.However production is done only for 4-5 months a year and as sales is as per the demand of government many a times it happens that there is huge shortage of funds for raw material i.e sugarcane,so they have taken loan on which interest is to be paid.Now can the co. take in to consideration this interest amount for valuing inventory.
31 August 2009
Inventories should be valued at the lower of cost and net realizable value.The cost of inventories should comprise
(a) all costs of purchase (b) costs of conversion (c) other costs incurred in bringing the inventories to their present location and condition.
The other costs are also included in the cost of inventory to the extent they contribute in bringing the inventory to its present location and condition.
Interest and other borrowing costs are usually not included in cost of inventory. However, AS-16 recommends the areas where borrowing costs are taken as cost of inventory.
AS-16 BORROWING COSTSBorrowing Costs include: 1. Interest and commitment charges on borrowings 2. Amortization of discounts or premiums relating to borrowings 3. Amortisation of ancillary costs incurred in connection with the arrangement of borrowings 4. Exchange difference arising from borrowings to the extent it amounts to interest costs.
Borrowing costs should be recognized as an expense in the period in which they are incurred.
Borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset should be capitalized as part of that asset.
Qualifying Asset is an asset that necessarily takes a substantial period of time to get ready for its intended use or sale. e.g. Heavy Plant & Machinery.
31 August 2009
Inventories should be valued at the lower of cost and net realizable value.The cost of inventories should comprise
(a) all costs of purchase (b) costs of conversion (c) other costs incurred in bringing the inventories to their present location and condition.
The other costs are also included in the cost of inventory to the extent they contribute in bringing the inventory to its present location and condition.
Interest and other borrowing costs are usually not included in cost of inventory. However, AS-16 recommends the areas where borrowing costs are taken as cost of inventory.
AS-16 BORROWING COSTSBorrowing Costs include: 1. Interest and commitment charges on borrowings 2. Amortization of discounts or premiums relating to borrowings 3. Amortisation of ancillary costs incurred in connection with the arrangement of borrowings 4. Exchange difference arising from borrowings to the extent it amounts to interest costs.
Borrowing costs should be recognized as an expense in the period in which they are incurred.
Borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset should be capitalized as part of that asset.
Qualifying Asset is an asset that necessarily takes a substantial period of time to get ready for its intended use or sale. e.g. Heavy Plant & Machinery. it means company show it as part of stock.
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