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Very very urgent

CA.Sonia (professional) (517 Points)

02 May 2010

Hello to All,

1.Want to Know Loan borrowed for project of an hospital ( ii.e Acquisiton of Land, Constructuon, Purchase of Equpments Etc.0 how the interest amount related to loan should be captalised on Assets OR should be treated as Pre-Operatvie EXP?

a.What if treated the whole INT amt as PREOPERATVIE or IT SHOULD BE CAPTALISED ? WHICH IS A BETTER option?

2.And wht about the salaries it should be treated as pre-operative or Can be captalised with the Fixed assets and how to proportionately consider the amount for Fixed Assets?

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16 Replies

(Guest)

should be capitalised...

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CA.Sonia (professional) (517 Points)
Replied 02 May 2010

Why not as operative Expenses?

nidhi (student) (58 Points)
Replied 02 May 2010

it shld be capitalised because any expenditure incurred before putting an asset into use all shld be added to cost of aquisition

@ CA. $ahar$h @ (Student) (338 Points)
Replied 02 May 2010

Hi Sonia,

Yaar whether interest should be capitalised or not depend upon asset to asset. in case of machinery on whome depriciation will be charged interest should be capitalised. but for land interest should not be capitalised. as for land u are never gonna charge depriciation and with interest its value will keep on increasing and you wont be able to prove the appropriation of interest over that as it wont be in purchase deed.

Better show it as preoperative expense till the date of incorporation of hospital and further depending on the nature of asset either capitalise or charge against reciepts as explained earlierFuther, Salaried paid before the incorporation of hospital should be preoperative expenses and after that should be charged to income and expenditure account.

(Guest)

Originally posted by : CA.Sonia
	Why not as operative Expenses?

respected ma'am, you are so senior to me and u have more experience and knowledge than me.....as I'm a pcc student...I have studied that according to AS-10....it should be capitalised...

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@ CA. $ahar$h @ (Student) (338 Points)
Replied 02 May 2010

yaar rohit as 10 has not talk about institutions which have been incorporated and loan taken prior to that.

(Guest)

Originally posted by : CA.Sonia

Why not as operative Expthanks batane ke liye

(Guest)

As per accounting standard on fixed assets , and a realted study of accounting standard of borrowing cost, i suggest to capitalise interest on borrowed amount on all item except land. As all the items of expenditure in under the same project, ie, building of hospital and realted machinery in there. Interest can be capitalise if work is not inturrpted and finised at a go. For interruption period , the interest should not be capitalize.

(Guest)

When you are incurring expenditure which you can't put into asset heads you can treat them as pre-operation expenses , like legal expenses for incorporation of a company, etc. But here the expense directly related to some assets. So why loose future depreciation benefit?

TAPASH (AUDIT EXECUTIVE) (132 Points)
Replied 02 May 2010

Here a join study of AS 10 and ACCOUNTING STANDARD FOR BORRWOING COST NEEDED as i feel. And mandi is correct as per me.

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(Guest)

yes, mandi is correct why should we think only in one angle. upto my knowledge it is true. this is the question having combination of BORROWING COST AND FIXED ASSETS. and why shouldnt we think about future depreciation benefits.

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Dhruva Hegde (Chartered Accountant) (230 Points)
Replied 02 May 2010

Sonia...

when you have taken loan for construction of hospital until it starts it's operation means commencing its business the amt whatever either principal or int you are supposed to capitalise the expenditure and There is no option to treat it as pre-operative expns.If you treat it as pre operative then you are allowed to take 20% of the whole expenditure under IT act later after 5 years there wont be any asset in your company.. So As per AS 10 You are supposed to treat it as BUILDING and claim depreciation & Salaries & other expns as pre operative epxns till it starts its bussiness......