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Borrowing Cost AS - 16

Ravi Yadav
09 Jun 0 0

1) What are the: BC (Borrowing Cost) & QA (Qualifiying Asset)?

i) Borrowing Cost:

  • BC are interest & other coasts incurred by co in connection with borrowing funds

  • It includes int, commitment charges, amortised discount & premium & ancillary cost on BF, finance charges under lease & HP, Ex- change rate differences in foreign currency borrowings.

ii) Qualifying Assets:

  • It is an asset that necessarily takes a substantial period of time to get ready for its intended use (FA or Investment propery)  or sale (inventory)

  • Substantial period means 12 months and longer or shorter period may also consider if it is justified based on circumstances of each case

2) Recogintion & Types of BC:


  • BC that are Directly attributable to (a) Acquisition (b) Construction (c) Production of QA should be capitalised as the part of the cost of that asset

  • BC are capitalised when it is probable that QA will result in future economic benefits. The cost can be measured reliably.

  • Other BC Should be recognised as period expenses in P & L a/c


Types of BC:

  • Specific Borrowing: It is Specifically borrowed for a particular QA. BC on QA can be readily identified. Amount to be capitalised after deducting any income on temporary invetsments

  • General Borrowing: Here no.of debt instruments are used to borrowed @ varying rates of interest. BC on QA can not readily identifed. Step 1 is calculate w.avg at borrowing rate. Step 2 is calculate the amount to be capitalise. Step 3 is amount of BC capitalised during the period should not be more that actual BC.

3) Objective & Scope:

  • It  prescribes accounting teatment for BC.

  •  It does not deal with actual or imputed cost of ESC & PSC and it is not classified as liability.

4) Disclosures:

  •  Accouting policy adopted for BS                

  • Total amount of BC capitalised during the period

5) Capitalisation:

  • Commencement: If all conditions are satisfy.

  1. Expenditure on QA is incurred: It includes cash & transfer of other assets (less) any progress payments received & any Gov. grant received in connection to QA.

  2. BC are Being Incurred.

  3. Activities for QA are in progress for its intended use or sale

  • Suspension of Capitalisation:

  1. For period which active development is interrupted.

  2. Exception: 1.when substantial technical & Admin work is being carried out 2. Temporary delay is necessary for readying QA for intended sale or use.

  • Cessation:

  1. On substantial completion of QA: i.e QA in normally ready for its intended use or sale but some admin work or only some minor modifiactions are in pending.

  2. QA completed in parts (e.g Building park): If completed part is capable of being used or sale  while construction continues for the other parts, then cap.of BC in relation to that part should cease

  3. QA completed in full (e.g. Industrial plant ): If completed part cannot be used untill construction of all parts is completed then Cap.of BC should be cease only when substantially all activities relating to the QA is completed for its intended use or sale.


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