Beruflich Dokumente
Kultur Dokumente
Scope
This Statement should be applied in
actual or imputed cost of owners equity, including preference share capital not classified as a liability. liability.
Definitions
The following terms are used in this Statement with the meanings specified: specified:
Borrowing costs are interest and other costs incurred by an enterprise in connection with the borrowing of funds. funds. qualifying asset is an asset that necessarily takes a substantial period of time to get ready for its intended use or sale. sale.
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Definitions
Borrowing costs may include:
interest and commitment charges on bank borrowings and other shortshort-term and long-term borrowings; longamortisation of discounts or premiums relating to borrowings; amortisation of ancillary costs incurred in connection with the arrangement of borrowings; finance charges in respect of assets acquired under finance leases or under other similar arrangements; and arrangements; exchange differences arising from foreign currency borrowings to the extent that they are regarded as an adjustment to interest costs. costs.
Borrowing costs include interest paid on short-term shortborrowings such as working capital finance that existed when the qualifying asset was being purchased, constructed or produced. produced. Borrowing costs exclude actual or imputed cost of owners equity, including preference share capital not classified as a liability however interst (dividend) paid on preference shares will fall within the definition of borrowing costs. costs. Borrowing cost excludes sales tax deferral as sales tax deferral is an operating liability and cannot be termed as loan. loan.
Qualifying Assets
A qualifying asset is an asset that necessarily takes a substantial period of time to get ready for its intended use or sale. sale. Assets that are ready for their intended use or sale when acquired are not termed as qualifying assets. assets. Examples of qualifying assets are manufacturing plants, power generation facilities, inventories that require a substantial period of time to bring them to a saleable condition, and investment properties. Other investments, and properties. 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. Assets that are ready for their intended use or sale when assets. acquired also are not qualifying assets. assets.
Borrowing costs relating to sugar held in stock cannot be capitalised because it is not attributable to the acquisition or production of the asset. asset.
In case of inventories, substantial period of time is considered to be involved where time is the major factor in bringing about a change in the condition of inventories. inventories. For example, liquor is often required to be kept in store for more than twelve months for maturing. maturing.
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. The asset. amount of borrowing costs eligible for capitalisation should be determined in accordance with this Statement. Other Statement. borrowing costs should be recognised as an expense in the period in which they are incurred. incurred. Borrowing costs are capitalised as part of the cost of a qualifying asset when it is probable that they will result in future economic benefits to the enterprise and the costs can be measured reliably. Other borrowing costs are recognised reliably. as an expense in the period in which they are incurred. incurred.
Commencement of Capitalisation
o The capitalisation of borrowing costs as part of the cost of a qualifying asset
should commence when all the following conditions are satisfied: satisfied:
borrowing costs are being incurred;; and incurred activities that are necessary to prepare the asset for its intended use or sale
are in progress. progress.
Suspension of Capitalisation
Capitalisation of borrowing costs should be suspended
during extended periods in which active development is interrupted. interrupted. For example; security maintenance, regulatory example; follow up and compliance etc. etc.
Cessation of Capitalisation
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. complete. An asset is normally ready for its intended use or sale when its physical construction or production is complete even though routine administrative work might still continue. If minor modifications, such as the decoration of a continue. property to the users specification, are all that are outstanding, this indicates that substantially all the activities are complete. complete. When the construction of a qualifying asset is completed in parts and a completed part is capable of being used while construction continues for the other parts, capitalisation of borrowing costs in relation to a part should cease when substantially all the activities necessary to prepare that part for its intended use or sale are complete. complete. A business park comprising several buildings, each of which can be used individually, is an example of a qualifying asset for which each part is capable of being used while construction continues for the other parts. An example of a parts. qualifying asset that needs to be complete before any part can be used is an industrial plant involving several processes which are carried out in sequence at different parts of the plant within the same site, such as a steel mill. mill.
Borrowing Cost Includes Exchange Differences (ASI-10) (ASIBorrowing cost includes exchange differences arising from foreign currency borrowings to the extent that they are regarded as adjustment to interest costs. The costs. costs that are incurred pre-installation of an asset are precapitalised and those that are incurred post installation of an asset are charged to revenue. revenue. For example; Sometimes foreign currency loans are example; availed at reduced interest rates. However, some of the rates. benefit of low interest rate is eroded by adverse moment in foreign currency rates. That portion only rates. can be capitalised under ASI-10. ASI-10.
Burning Issues
Proportionate interest on fund utilized including on advances made to suppliers for the qualifying asset should be capitalised. The loan capitalised. used for working capital should not be capitalised. capitalised. Interest expenses once capitalised correctly in accordance with AS-16, cannot be decapitalised AS-16, thereafter even if the interest amount is waived. waived.
Burning Issues
Borrowing costs incurred during the normal period ( not during abnormal period ) of trial run should be capitalised. capitalised. Investments are not qualifying assets under ASAS16, hence interest cannot be capitalised. As 16, capitalised. investments are immediately ready for use, unlike plant or factory, which requires time for its construction. construction.
The financial statements should disclose: disclose: the accounting policy adopted for borrowing costs; and costs; the amount of borrowing costs capitalised during the period. period.
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