12 August 2008
A ltd. company engaged in manufacturing of radiator (a part of transformer) It has incurred huge expenditure on construction of building and machinery. The company has borrowed fund from the nationalized bank for such purpose and capitalized the interest on the borrowed fund. But there is contradiction in the view of internal as well as statutory auditor. According to statutory auditor, the part of fund which is utilized for construction of machinery should not be capitalized as in the standard the term “ready to use” is given instead of “Put to use”. Whereas internal auditor opined that it should be capitalized because the standard has clearly mentioned that construction of qualifying asset must be in progress hence it is not available for put to use. Please clear the situation as per Accounting Standard 16 on borrowing cost. Please support your answer with data from published accounts or relevant case laws.
CAclubindia
