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#12: Question of the day (Inter)
Accountancy
Write the answer in a sheet as you would write in exam and send photo by 8pm. #LetsPractice U Limited has obtained a term loan of Rs. 620 lacs for a complete renovation and modernization of its Factory on 1st April, 2020. Plant and Machinery was acquired under the modernization scheme and installation was completed on 30th April, 2021. An expenditure of Rs. 564 lacs was incurred on this Plant and Machinery and the balance loan of Rs. 56 lacs has been used for working capital purposes. The company has paid total interest of Rs. 68.20 lacs during financial year 2020-2021 on the above loan. The accountant seeks your advice how to account for the interest paid in the books of accounts. Will your answer be different, if the whole process of renovation and modernization gets completed by 28th February, 2021?
Answers (1)
Correct answer: Rs. 62.04 lakh to be capitalised and Rs. 6.16 lakh to be charged to Profit and Loss Account. If the whole process of renovation and modernization gets completed by 28th February, 2021; P&M will not be considered as qualifying asset. In that case, entire interest to be charged to P&L. For details, please refer the pic below.
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