12 August 2014
I have a Pvt. Ltd. Co. I Bought machinery for manufacturing by raise a loan a/c. But production will start from next year. Please show me the treatment of finance charges for 1st year, according to "Accounting standard". Which Accounting standard will apply? Treatment for capitalization of finance charges.
12 August 2014
1) Till date asset is ready for its intended use, you can capitalise the finance cost (add to cost of asset) provided the funds borrowed are wholly used for the purpose.
2) If the funds are borrowed for general use then pro rata basis finnace cost to be worked out
3) In case till the the asset is ready for its active use, you have deposited funds in deposits and earned interest , the interest earned has to be deducted
4||) Once the asset is ready fort inteneded use , capitalisation of financed cost will stop.
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