In May, 2018, Capacity Ltd. took a bank loan to be used specifically for the construction...
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In May, 2018, Capacity Ltd. took a bank loan to be used specifically for the construction of a new factory building. The construction was completed in January, 2019 and the building was put to its use immediately thereafter. Interest on the actual amount used for construction of the building till its completion was Rs.18 lakhs, whereas the total interest payable to the bank on the loan for the period till 31st March, 2019 amounted to Rs.25lakhs. Can Rs.25 lakhs be treated as part of the cost of factory building and thus be capitalized on the plea that the loan was specifically taken for the construction of factory building? Explain the treatment in line with the provisions of AS 16. In May, 2018, Capacity Ltd. took a bank loan to be used specifically for the construction of a new factory building. The construction was completed in January, 2019 and the building was put to its use immediately thereafter. Interest on the actual amount used for construction of the building till its completion was Rs.18 lakhs, whereas the total interest payable to the bank on the loan for the period till 31st March, 2019 amounted to Rs.25lakhs. Can Rs.25 lakhs be treated as part of the cost of factory building and thus be capitalized on the plea that the loan was specifically taken for the construction of factory building? Explain the treatment in line with the provisions of AS 16.
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AS 16 states unequivocally that capitalization of borrowing costs should end ... View the full answer
Related Book For
Advanced Accounting
ISBN: 978-0133451863
12th edition
Authors: Floyd A. Beams, Joseph H. Anthony, Bruce Bettinghaus, Kenneth Smith
Posted Date:
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