AS 16 : Borrowing Costs

Accounting Standard 16: Borrowing Costs

· Statement to be applied in accounting for borrowing costs.

· Statement does not deal with the actual or imputed cost of owner’s equity/preference capital.

· Borrowing costs that are directly attributable to the acquisition, construction or production of any qualifying asset (assets that takes a substantial period of time to get ready for its intended use or sale. should be capitalized.) Generally, a period of 12 months is considered as a substantial period of time (ASI-1).

· Income on the temporary investment of the borrowed funds be deducted from borrowing costs.

· In case of funds obtained generally and used for obtaining a qualifying asset, the borrowing cost to be capitalized is determined by applying weighted average of borrowing cost on outstanding borrowings, other than borrowings for obtaining qualifying asset.

· Capitalization of borrowing costs should be suspended during extended periods in which development is interrupted. When the expected cost of the qualifying asset exceeds its recoverable amount or Net Realizable Value, the carrying amount is written down.

· Capitalization should cease when activity is completed substantially or if completed in parts, in respect of that part, all the activities for its intended use or sale are complete.

· Financial statements to disclose accounting policy adopted for borrowing cost and also the amount of borrowing costs capitalized during the period.

In case exchange difference on foreign currency borrowings represent saving in interest, compared to interest rate for the local currency borrowings, it should be treated as part of interest cost for AS 16 (ASI-10).