When there is ex loss on loan repayment (taken for purchase of asset), instalment amount is capitalized and interest charged to PL. What is the reasoning behind this?
3 Replies
CA. Sandeep Kumawat
(CA)
(341 Points)
Replied 19 August 2016
It is simple
when an asset is ready to use all expenditure up to that point has to be capitalized which are directly attributable to the asset, so basic cost of the asset is actually identified sum of Foreign Currency hence to be capitalized.
when an asset is ready to use post capitalization all expenses will be charged to the PL, like how we charge interest of Capex Loan to the PL (refer borrowing cost)
if you analyze you will find that your question is not related to AS 11 instead, it is related to AS 16 Borrowing Costs, where all costs related to asset procurement or construction will be charged to PL post capitalization.
hope it is clear now!!
sagar parakh
(Group 2 Cleared)
(317 Points)
Replied 24 August 2016
yes all costs shall be capitalised if it is qualifying assets as per AS-16.
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