CA Sahil Singla.. (Service Tax ) (3746 Points)
23 September 2011Friends
I have a doubt on AS 16 Borrowing Cost. Plz help me -
A Co. Borrowed a Loan of1000000 for Purchase of machinery on 01.04.2010. The machinery was put to use on 30.06.2011, after 15 months. Plz tell me how much borrowing cost will be capitalised for the year 2010-11, with reasons ?
sumit jain
(.)
(844 Points)
Replied 23 September 2011
i doubt whether interest can be can be capitalized.. i think machinery purchased is not a qualifying asset.. let others share their views
Sachin
(student)
(214 Points)
Replied 23 September 2011
If the machine is ready to use on 1.4.10 , then it will not b qualifying asset and therefore no AS 16.. This is not Tax, it is a/c's.. In AS 16, their is no concept of Put to use, it is irrelevant...
Suresh G
(Final Student)
(272 Points)
Replied 23 September 2011
"Friends
I have a doubt on AS 16 Borrowing Cost. Plz help me -
A Co. Borrowed a Loan of1000000 for Purchase of machinery on 01.04.2010. The machinery was put to use on 30.06.2011, after 15 months. Plz tell me how much borrowing cost will be capitalised for the year 2010-11, with reasons ?"
"AS 16 - Borrowing Costs
1.Borrowing costs are interest and other costs that an entity incurs in connection with the borrowing of funds.
2. A qualifying asset is an asset that necessarily takes a substantial period of time to get ready for its intended use or sale.(In Other words Assets that are ready for their intended use or sale when acquired also are not qualifying assets.)
Borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset should be capitalised as part of the cost of that asset.
Commencement of Capitalisation
14. The capitalisation of borrowing costs as part of the cost of a qualifying asset should commence when all the following conditions are satisfied:
(a) expenditure for the acquisition, construction or production of a qualifying asset is being incurred;
(b) borrowing costs are being incurred; and
(c) activities that are necessary to prepare the asset for its intended use or sale are in progress.
Cessation of Capitalisation
19. Capitalisation of borrowing costs should cease when substantially all the activities necessary to prepare the qualifying asset for its intended use or sale are complete."
From the above question we dont know when actually the machinery is Purchased/Acquired. And also when the machinery(Qaulifying Asset) is ready for Intended Use. (Actual put to use date of qualify Asset is irrelevant)
CA. Abhishek K. Pandey
(Manager (Advance))
(901 Points)
Replied 23 September 2011
CA Sahil Singla..
(Service Tax )
(3746 Points)
Replied 24 September 2011
okay. Thanks for ur replies
CAclubindia
