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Accounting standard 16

Jitendra (Internal Auditor) (220 Points)

01 June 2018

Hello experts,

If company received Term Loan for P&M, electrical installation and building on 10.1.18 and P&M bought after 20 days but it was started to use after 30 days of accepting loan and building would be construed within 6 months. So, please tell me should stamp duty, processing charges and any other charges for getting loan be capitalized or not? Please give me suggestions with supporting Accounting Standard and IT Act.

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Siddharth Goel (Chartered Accountant) (3031 Points)
Replied 04 June 2018

Hi,

Borrowing Cost is the interest and other cost which is incurred by an enterprise in relation to borrowing of funds.

The following points should be considered for the purpose of borrowing cost:-

A. Interest on short term loans or long term debts should be included as a part of borrowing cost.

B. If any enterprise has incurred ancillary cost (related) for the arrangement of funds than amortized part of such cost should also be included as a part of borrowing cost. For example:- Brokerage, commission, stamp duty charges and any other related cost.

C. Discounts / Premiums which are incurred by an enterprise in relation to arrangement of fund, such amount should not be taken in total but amortised part of Discount & Premium should be included as a part of borrowing cost.

On the basis of above explanation, stamp duty, processing charges and any other charges for getting loan are also considerable for the purpose of borrowing cost.

You can refer this detailed aand comprehensive article which will solve all of your doubts at: https://www.caclubindia.com/forum/accounting-standard-16-465577.asp