Académique Documents
Professionnel Documents
Culture Documents
Borrowing Costs
To be treated To be capitalised
as borrowing cost to loan obligation
as per AS -16 as per SCH VI
Criteria
Future Economic Benefits
Reliable Measurement
Borrowings Cost
Additional Information:
1. Rs. 20 Lacs , 11% p.a. secured debentures raised on July2004
redeemable in four equal installments commencing July 1, 2005
2. Loan from financial institutions amounting to Rs. 30 Lacs bearing interest
at 14% p.a. obtained for construction of Plant I & II on May 1,2005
3. Rs. 5 Lacs, 14% working capital loan obtained on April 1, 2005 and
repaid Rs. 1 Lac on December 31, 2005. Contd..
Contd..
Vinod Jain, FCA, FCS, FCWA
Vinodjain@inmacsindia.com INMACS
Calculation of Weighted Average Rate of Interest
Solution
Interest Capitalised
1. Plant I
On specific borrowings: 22,00,000 X 14% X 7 / 12 = 1,79,667/-
On general Borrowings: 8,00,000 x 11.67% x 7 / 12 = 54,460/-
2. Plant II
On specific borrowings: 8,00,000 X 14% X 6 / 12 = 56,000/-
On general Borrowings: 12,00,000 x 11.67% x 6 / 12 = 70,020/-
Notes to Accounts
Interest debited to the Profit & Loss Account is net of interest
capitalized amounting to Rs. Nil (2004 – Rs. 233,156,467)
Vinod Jain, FCA, FCS, FCWA
Vinodjain@inmacsindia.com INMACS
COP - Capitalisation of Borrowing Costs
Q. Whether borrowing cost avoidable or unavoidable?
A. Said to be unavoidable if expenditure on qualifying assets had been
incurred and borrowing is taken ,Existing borrowing exercise of
judgement required.
Q. Date of capitalization?
A. Date on which package is ready to commence commercial production.
Q. Allocation of incidental expenditure during construction?
A. On appropriate basis.
Q. Capitalisation of independent packages which are complete when
capitalization of main packages is pending ?
A. Capitalised when ready for their intended use.
Vinod Jain, FCA, FCS, FCWA
Vinodjain@inmacsindia.com INMACS
COP - Capitalisation of completed parts of a project
Q. Capitalisation of main packages when capitalization of ancillary
packages is pending or vice versa?