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As 16
Accountancy
If a specific loan has been incurred for construction of a qualifying asset (say 50000 @ 10%p.a) and asset got constructed at an expenditure of just 25000. How much amount of borrowing cost would be eligible for capitalization? My opinion is that only only 2500 (25000*10%) can be capitalized , which is directly attributable to construction cost The confusion arises because text of as 16 on specific borrowing states that "To the extent that funds are borrowed specifically for obtaining a qualifying asset,the amount of borrowing cost eligible for capitalization on that asset should be determined as the actual borrowing cost incurred on that borrowing during the period less any income on the temporary investments in those borrowing" actual borrowing cost is 5000 (10%of 50000) Plz clarify
Answers (2)
You also need to refer to Para 8. The borrowing which would have been avoided if the expenditure on capital asset would not have been incurred. In other words you need to consider only the amount spent and not the total amount borrowed. So 2500 would be capitalised and balance 2500 would be expensed.
