AS 16

I had decided to put up a factory. I had purchased a land for that and constructed a building.  In addition i was able to purchase 50% of my plant and machinery . These costs were my own funds.

Since i ran short of own funds, i borrowed money to finance the rest of plant and machinery. I am paying interest and other charges on such borrowing costs and capitalising it,

Note:

1)Activities are in the factory cannot be carried out unless the entire machinery is installed.

2) I cannot use the land, bldg and 50% p&m unless the other part of 50% P&M is installed.

Can my qualifying asset include the land and building and 50% of my plant and machinery purchased out of own funds? Or should the qualyfying asset (on which i can capitalise my borrowing cost) consist of only the 50% of the P&M that i purchased out of Borrowed funds.

Please clarify..

 

Replies (2)

If you can cleary identify the source and application of funds then go ahead with such classification and capitalise the interest on the qualifying asset i. e. 50% on P & M. Even otherwise since it is WIP the entire interest cost will be capitalise and there will not be any differentiation between the assest funded by u or by finance.

As per AS 16 borrowing costs shall be capitalised if  :-

(1)the asset takes substantial period of time(1 year) to get ready for its intended use  

(2) activities for purchase or construction are in progress

(3) borrowing costs are incurred

(4) expenses for purchase of asset are being incurred

 

Thus,borrowing costs cannot be cappitalised in case of Land & Bldg & 50% of P&M. Only other 50% can be capitalised subject to above conditions. 

Leave a Reply

Your are not logged in . Please login to post replies

Click here to Login / Register  

Company
04 September 2026
CA inter Or ca finalist

A Jaiswal and company

Lucknow

CA Final

View Details
Company
19 September 2026
Finance Manager

Mugdha Art Studio

Hyderabad

CA

View Details
Company
Featured 21 September 2026
Consultant - Reporting

Finrep Advisors LLP

Mumbai

CA

View Details
Company
ARTICLESHIP 07 September 2026
Article/ Paid Assistant

Murali and Sumeet Chartered Accountant

Bengaluru

CA Foundation

View Details
Company
ARTICLESHIP 15 September 2026
Freelance Taxation Content Writer Intern

Interactive Media Pvt Ltd.

New Delhi

CA Inter

View Details
Company
ARTICLESHIP 04 September 2026
Accounts Executive

Hema Yashwanth & Associates

Chennai

B.Com

View Details
Company
09 September 2026
Chartered Accountant

Aviv Global Private Limited

Ahmedabad

CA

View Details
Company
18 September 2026
Accounts & Finance Specialist

ULTRA CHEMICAL WORKS

Thane

CA Final

View Details