Borrowing COST
AS - 16
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1.
This AS is mandatory in nature and applicable
to all entities.
2.
Borrowing Cost include the Following :
i.
ii.
iii.
iv.
v.
Interest and Commitment Charges.
Amortization of Discount on Debentures.
Amortization of Expenses to raise Finance.
Finance Charges in case of Lease.
Exchange Difference to the extent of difference
between :
[ Cost of local borrowing – Cost of International Borrowing]
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3.
Borrowing Cost will be treated as follows :
•
On Qualifying asset will be transferred to cost of
Qualifying asset.
•
On Non Qualifying asset will be transferred to P & L.
Note : Borrowing Cost Capitalized can not exceed Actual
Borrowing Cost.
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4. Qualifying Asset
These are those assets which are being
Constructed,
Renovated,
Installed and
take Substantial Period for becoming ready to use.
Note : Period of 12 month or more is considered
substantial.
( For Exam purpose period is not considered)
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5. How to calculate amount to be Capitalized
Step 1: Identify Qualifying Asset.
Step 2: Identify Borrowing Cost.
Step 3: Calculate Capitalization Rate :
Borrowings
Specific
General (Debenture)
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Step 3: Calculate Capitalization Rate :
If Borrowings are Specific :
BC - Earning from idle funds
=
x 100
Borrowing Funds
If Borrowing are General ( Debenture) :
BC
=
x 100
Borrowing Fund
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Step 4 : Calculation of Expenditure on Qualifying
Asset.
Expenditure with Capitalized BC (Op. Cost)
Add: Cash Expenses
Add: Assets Consumed
Less: Progress Payments or Subsidy
Expenditure
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Step 5 : Calculate Period of Capitalization.
Commencement of Capitalization in Considered, when
all of following conditions are satisfied.
a)
b)
c)
Expenditure on QA is being incurred.
Active development is taking place.
Borrowing Cost is being incurred.
Suspension of Capitalization :
Whenever active development is interrupted due to
abnormal reasons, than capitalization is suspended for
that period.
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Cessation of Capitalisation:
If any of the following condition is satisfied, than
Capitalisation ceases.
Borrowing Cost is not being incurred.
OR
Asset is ready for use wholly or Partially
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6. Disclosure Requirement
1.
Borrowing Cost Capitalised should be Disclosed
2.
Capitalization Policy should be disclosed.
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