Interest borrowed for acquisition of asset is capitalised .
Interest on deferred payment for acquistion of capital asset -allowed as an expense
Please explain .
5 Replies
Yasaswi Gomes new
(Finance )
(4514 Points)
Replied 08 December 2023
To be frank, deferred payments are accruals during putchases and not capitalosed. Depreciation is allowed but not the whole ppe.
Janaki A.R
(8 Points)
Replied 08 December 2023
Please correct my understanding if wrong
Interest borrowed for acquisition of asset is capitalized .( Capitalized - before asset put to use)
Interest on deferred payment for acquisition of capital asset -allowed as an expense (Expensed- after Asset put to use)
Yasaswi Gomes new
(Finance )
(4514 Points)
Replied 08 December 2023
Deferred payment means delayed payment of interest to the bank right? Dont do that many times cause you could be facing hard capital rationing. Anyways, as long as there is no halt, you can capitalise it even if it is deferred.
sabyasachi mukherjee
(27574 Points)
Replied 13 December 2023
Deffered payment is also a part of asset cost.
Yasaswi Gomes new
(Finance )
(4514 Points)
Replied 13 December 2023
That is correct by you @ sabyasachi if the company borrows 100 for project and worked for 6 months
proprty 90
building 80
leaese30
capitalised interest 100*10%*6/12= 5
total ppe/assets=205
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