"How will interest be capitalised when qualifying assets are funded by borrowings in the nature of bonds that are issued at a discount? OR An entity…

As per AS 16, "Borrowing costs are interest and other costs incurred by an enterprise in connection with the borrowing of funds". Further, the Statement contemplates "amortisation of discounts or premiums relating to borrowings" as a component of borrowing costs (paragraph 4(b)). Thus, the borrowing costs comprise the periodic interest payable on the bonds in question and the amount of discount amortised during the period. Paragraph 6 of the Statement, inter-alia, states that "Borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset should be capitalised as part of the cost of that asset". Further, paragraph 19 states that "Capitalisation of borrowing costs should cease when substantially all the activities necessary to prepare the qualifying asset for its intended use or sale are complete". Thus, only that portion of the amortised discount should be capitalised as part of the cost of a qualifying asset which relates to the period during which acquisition, construction or production of the asset takes place. OR Item Description Classification Security deposits paid to electricity company Non-current asset Raw materials inventory Current asset Prepaid rent (for 14 months) Current asset (if not material beyond 12 months) Fixed deposits with 18-month maturity Non-current asset