Glen Ltd. began construction of a new building on 1st January, 2025. On 1st April, 2025, following two loans were obtained to fund the construction…

According to 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. The amount of borrowing costs eligible for capitalization should be determined in accordance with this Standard. Other borrowing costs should be recognised as an expense in the period in which they are incurred. The standard also states that to the extent that funds are borrowed specifically for the purpose of obtaining a qualifying asset, the amount of borrowing costs eligible for capitalization on that asset should be determined as the actual borrowing costs incurred on that borrowing during the period less any income on the temporary investment of those borrowings. Thus, eligible borrowing cost on Loan of data bank to be capitalized: = ₹ (60,00,000 x 8%) x 10/12 -30,000 = ₹ (4,80,000 x 10/12) = 4,00,000 = 4,00,000 -30,000 = 3,70,000 Loan Particulars Nature of assets (a) Interest to be Capitalized (₹) (b) Interest to be charged to Profit & Loss Account (₹) Data bank Construction of factory building Qualifying Asset 3,70,000 (4,80,000 - 4,00,000) 80,000 Satya Bank Construction of factory building Qualifying Asset (1,92,000x14/20) x 10/12 = 1,12,000 (1,92,000 x 14/20) x 2/12 = 22,400 Satya Bank Working Capital Not a Qualifying Asset NIL (1,92,000x6/20) = 57,600 Total 4,82,000 1,60,000 Note: Loan from Satya bank is considered to be specific borrowings.