Interest on Investment

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Querist : Anonymous

Querist : Anonymous (Querist)

23 April 2011 Whether interest on amount borrowed for investment can be added to the cost of investment under AS-13?

CA. Deepak Narula

CA. Deepak Narula (Expert)
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23 April 2011 Interest on amount borrowed for purchase of investments cannot be added to the cost of investments as per AS-16 on Borrowing cost because it is not qualifying asset as per AS-16. A qualifying asset is one which takes subtantial time for its intended use or sale and investments are anytime time to be sold. So it cant be added to cost.

But the interst on borrowing can be deduected from the return on investment to show the true income from investment.

Querist : Anonymous

Querist : Anonymous (Querist)

23 April 2011 My query is regarding AS-13. Whether AS- 13 allows for such addition of interest to the cost of capitalisation. AS-16 generally applies to Fixed Assets

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CA. Deepak Narula

CA. Deepak Narula (Expert)
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25 April 2011 how can u add interest charged regularly to cost of investment? can u keep on revising cost of investment after every month when bank charges interst on loan? do u think this kind of capitalization is prudent?

my reply was in context to AS-13 but referring to AS-16. In simple words, u can only claim interest expense from interst received on investment and cant capitalize the interest every time it is charged.