CA Inter AS 16: borrowing cost
Following concepts are covered by this standard
- meaning and treatment
-Calculation of borrowing cost to be capitalised
-Treatment of exchange dierence as borrowing cost
-theory
(2) Meaning and treatment
Meaning of borrowing cost : (a) Interest and other charges on long term or shor term loans or
interest on leases.
(b)Amortisation of discount or premium or other expenses amortised on redemption of
borrowings
(c) Any exchange dierence which is in nature of loss, upto cost of local borrowings
Treatment : BC incurred on construction , acquisition or production of qualifying assets is
capitalised with qualifying asset (QA)
Other borrowing cost are expensed in profit and loss account .
Meaning of qualifying assets: Assets which take necessary substantial period of time to get
ready for intended use .
Generally 12 months or more is considered as substantial period , unless lower period can be
justified .
(3) Calculation of borrowing cost to be capitalised
(a) specific borrowing only
Step 1 : calculate borrowing cost incurred upto date of completion of QA
Step 2 : calculate any interest earned on idle funds
Step 3: Calculate net borrowing cost
Step 4 : Allocate net borrowing cost in ratio of expenditure for all assets on which borrowing
cost was used
Step 5 : B.cost on QA should be capitalised .other BC is expensed in P & L A/C.
