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AS 16
Accountancy
In the given AS 16 question, they have capitalized interest amounting to 18lakh. The loan was taken on may 2020 and construction has been competed on January 2021. How can we treat it as a qualifying asset and capitalize the interest when no substantial period of time is involved. Can anyone help me?
Answers (10)
Thread Starter
vs navinThey have mentioned that 18lakh as a interest. We should not capitalize it right? But why are we doing it?
No, it is expense since Asset is not qualified asset. hence Interest wont be capitalized
Thread Starter
vs navinHere
Okay, as per suggested answer, what I think is the loan amount would be paid over further term and its directly attributable to such asset. So, interest paid on it would be capitalized given that loan is directly used for purpose of construction and qualifying asset part wont be applicable given that cost of construction is not borne by entity directly instead it would be paid by entity over due term.
CA Suraj Lakhotia Admin
The duration of loan does not matter.
A qualifying asset is an asset that necessarily takes a substantial period of time to get ready for its intended use or sale. What consitutes a substantial period of time depends on facts of each case. Ordinarliy, a period of 12 months is considered to be substantial period of time unless a longer or shorter period is justified. So if you assume that the given duration is substantial period of time - capitalise else expense. Give your assumption in the exam.
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