Professional Documents
Culture Documents
Borrowing Costs
Adjustment =
Interest on local currency borrowing
Interest on foreign currency borrowing
To be treated To be capitalised
as borrowing cost to loan obligation
as per AS -16 as per SCH VI
Directly attributable
attributable* for:
acquisition
construction
production
p od ction of
Assets
A t other
th th
than
Qualifying Assets
Qualifying assets
Criteria
Future Economic Benefits
Reliable Measurement
N t :E
Note Expenses nott ffulfilling
lfilli the
th criteria
it i tot be
b
treated as revenue expenditure
Borrowings Cost
ABC Co. Ltd. undertakes significant expansion program and incurs following capital
expenditure:
Facility Capex Remarks Date Date of
(in Rs.) of Start Completion
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..
= 15,00,000
, , x 11% x 9 /12
/ = 1,23,750/-
, , /
Contd..
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
8 00 000 x 11.67%
11 67% x 7 / 12 = 54,460/
54 460/-
2
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/-
includes
Payment of cash
Transfer of other assets
Assumption of interest bearing liabilities
Expenditure
Notes to Accounts
Interest amounting to Rs. 2.4 Million has been capitalized during the
year in compliance with AS-16.
Notes to Accounts
Interest debited to the Profit & Loss Account is net of interest
capitalized amounting to Rs. Nil (2004 Rs. 233,156,467)