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Accounting Standard 16 Borrowing Cost

Accounting Standard 16 Borrowing Cost

It includes the following:

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  • Cessation of capitalization : As per Accounting Standard 16 Borrowing Cost , when all the substantial activities to construct the asset are over then capitailising of borrowing cost for such asset needs to be stopped.


    Steps for solving question in exam

    • Step 1.) : find total borrowing cost for the period
    • Step 2.) : calculate amount to be capitalised

    Expenses for qualifying asset  * rate of borrowing * time period

    • Step 3.) : balance to be transferred to p&l account

    ( step 1  –  step 2 )

    Note :

    1. Rate may be of two type :
      • Specific rate : It is the rate on borrowing which is specifically borrowed for contruction of qualifying asset given . Use this rate upto the borrowing is specific otherwise,
      • General rate : It is the rate on the borrowing which is general in nature means which is not specifically borrowed for some particular asset . when there are more than one general borrowing then we have to find weitage average rate for general borrowings .

    It can be found as follow:

  •  borrowing cost on general borrowing *100 /equivalent amount of general borrowing outstandig for the period.Foreign exchange flutuation to be consider borrowing cost:{para 4(e)}:If Actual interest < Notional interest  then :Foreign exchange flutuation{F.E.F.} :-Borrowing cost(AS 16)                                               Balance if any:F.E.F.                                                                               AS-11OR                                                                                   F.E.F(NOTIONAL INTEREST – ACTUAL INTEREST )WHICH EVER IS LESSGeneral Note : general note for Accounting Standard 16 Borrowing Cost
    • When there is foreign currency loan , then to converet interest into reporting currecy actual payment date , rate of conversion is to be use , but if actual date of payment is not given than we can use average conversion rate as assumption that interest is paid through out the year.
    • And if foreign currency loan is general borrowing then when calculating weightage average rate , to convert loan amount always use average rate for finding equivalent amount outstanding through out the year.

    If you have any query in Accounting Standard 16 Borrowing Cost then comment on this blog . and if want practicle question then see next blog on Accounting Standard 16 Borrowing Cost .


  • Read this notes and get

Accounting Standard 16 Borrowing Costimages


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