U Limited has obtained a term loan of 620lacs for a complete renovation and modernisation of its Factory on 1st April, 2023. Plant and Machinery was…

Borrowing Cost: As per AS 16 ‘Borrowing Costs', borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset should be capitalized as part of the cost of that asset. Other borrowing costs should be recognized as an expense in the period in which they are incurred. Borrowing costs should be expensed except where they are directly attributable to acquisition, construction or production of qualifying asset. Qualifying Asset: A qualifying asset is an asset that necessarily takes a substantial period of time (ordinarily, a period of twelve months unless a shorter or longer period can be justified on the basis of the facts and circumstances of the case) to get ready for its intended use or sale. When construction of asset completed on 30th April, 2024 The treatment for total borrowing cost of 68.20 lakhs will be as follows: Purpose Nature Interest to be capitalised ₹ in lakhs Interest to be charged to profit and loss account ₹ in lakhs Modernisation and renovation of plant and machinery Qualifying asset [68.20 x (510/620)] = 56.10 Advance to additional assets Assumed as Qualifying asset (Refer Note) [68.20 x (54/620)] = 5.94 Working Capital Not a qualifying asset 6.16 62.04 6.16