CA Ashish Dodke (CA Job) (24 Points)
07 July 2013Dear Friends,
please share your views on, whether interest on working capital loan can be capitalized or not if working capital loan has been used to procure particular qualifying asset?
Bhaavna
(Queen )
(1933 Points)
Replied 07 July 2013
Sumit Pratap Singh
(Accounts Officer)
(48 Points)
Replied 07 July 2013
Vikram
(Article Trainee)
(27 Points)
Replied 07 July 2013
CA D R P
(Chartered Accountant)
(313 Points)
Replied 07 July 2013
YES.....
DEFINITELY ; SUCH INTEREST ON W/C CAN BE CAPITALIZED UNDER AS-16 UNDER "GENERAL BORROWINGS" BY APPLYING THE "APPROPRIATE CAPITALIZATION RATE"....
Ayyswariya RG
(Knowledge Seeker)
(3711 Points)
Replied 07 July 2013
Yes, I second DRP in the opinion that working capital loan can be capitalized. Working capital falls under general borrowings and the interest at which it should be capitalized is the weighted average rate of interest for the year.
ssp.khurana
(CA IN PRACTICE )
(29 Points)
Replied 08 July 2013
AKLESH KUMAR GOIT
(article)
(36 Points)
Replied 08 July 2013
Interest on on short term borrowings and long term borrowings is included under "Borrowing cost " as per AS 16.Hence, interest on working capital loan incurred in relation to any qualifying asset can be capitalized.
ABHINANDAN JAIN
(CA Student)
(886 Points)
Replied 08 July 2013
since lots of replies..so thought of asking one out of topic question..but related to the term working capital loan..
what type of loans are covered in working capital loan...whether Cash credit /OD said to be a type or category of w/cap loan..Or there is a specific type of loan which the bank offers in seperate specific name called working capital loan...?
one more doubt.. what is working capital demand loan...
Also why demand loan is prefixed with word DEMAND..why it so callked..whether it assume any feature...
CA vinod
(Chartered Accountant)
(518 Points)
Replied 10 July 2013
Expenditure should be included in the cost of inventory only to the extent that they are incurred in bringing the inventories to their present location and condition.
As per the para 12 of the AS 2 - Interest and other borrowing costs are usually considered as not relating to bringing the inventories to their present location and condition and are, therefore, usually not included in the cost of inventorie
and as per the para 5 of the AS 16 inventories that require a substantial period of time tobring them to a saleable condition are only comes under qualifying assets and those inventories that are routinely manufactured or otherwise produced in large quantities on a repetitive basis over a short period of time, are not qualifying assets.
By combined reading of the above standards we can come to a conclusion that usually interest should not be form part of the cost of inventory. Only borrowing costs incurred on those inventories require substantial period of time to bring them to saleable conditions Ex: Wine, Timber etc can be capitalized.
Bhaavna
(Queen )
(1933 Points)
Replied 10 July 2013
| Originally posted by : CA vinod | ||
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Expenditure should be included in the cost of inventory only to the extent that they are incurred in bringing the inventories to their present location and condition. As per the para 12 of the AS 2 - Interest and other borrowing costs are usually considered as not relating to bringing the inventories to their present location and condition and are, therefore, usually not included in the cost of inventorie and as per the para 5 of the AS 16 inventories that require a substantial period of time tobring them to a saleable condition are only comes under qualifying assets and those inventories that are routinely manufactured or otherwise produced in large quantities on a repetitive basis over a short period of time, are not qualifying assets. By combined reading of the above standards we can come to a conclusion that usually interest should not be form part of the cost of inventory. Only borrowing costs incurred on those inventories require substantial period of time to bring them to saleable conditions Ex: Wine, Timber etc can be capitalized. |
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