|Deals with treatment of borrowing cost.
Does not deal with the actual or imputed cost of owner’s equity and preference share holder.
| Borrowing cost: are interest and other costs incurred by a person in connection with the borrowing of funds and include:
(a) Commitment charges on borrowings;
(b) Amortised amount on discounts or premiums relating to borrowings;
(c) Amortised amount of ancillary costs incurred in connection with the arrangement of borrowings;
(d) Finance charges in respect of assets acquired under finance leases or under other similar arrangements.
| Qualifying asset : means
(a) Land, building, machinery, plant or furniture, being tangible assets;
(b) Know-how, patents, copyrights, trademarks, licenses, franchises or any other business or commercial rights of similar nature, being intangible assets;
(c) Inventories that require a period of twelve months or more to bring them to saleable condition.
Eligible for Capitalisation
- Accounting policy followed for treatment of borrowing cost
- Amount of borrowing cost capitalised during the period
Key difference with AS
- Qualifying asset are specifically defined in IcdS whereas in AS 16 it is any asset that takes substantial period (12 months) of time to ready for its intended use.
- Income from temporary investments of borrowing is treated as income as per the ACT, in AS 16 it is reduced from the borrowing cost to be capitalised.
- ICDS uses proportionate method for capitalisation whereas AS uses weighted average method.