Accounting Standard 16 outlines the accounting treatment for borrowing costs related to qualifying assets. It requires that borrowing costs directly attributable to the acquisition, construction or production of a qualifying asset be capitalized as part of the cost of that asset. Other borrowing costs should be recognized as an expense. Capitalization of borrowing costs should commence when funds are borrowed and activities to prepare the asset are underway, and cease when the asset is ready for its intended use or sale. Certain disclosures regarding capitalized borrowing costs are also required.

1. ACCOUNTING STANDARD-16 BORROWING COSTS

14. EXAMPLE Total exp. on a qualifying asset in a month 10 crores Average exp. for the month 5 crores Specific borrowings 3 crores General borrowings 6.5 crores Debentures (14%) 1.50 crores Long term borrowings (11%) 3.00 crores Short term borrowings (12%) 2.00 crores Exp. out of general borrowings 2 crores

15. EXAMPLE Weighted average rate 12% Capitalisation of borrowing costs on the above expenditure of Rs 2 crores should be at the rate of 12% p.a. for the said month apart from capitalisation of interest on specific borrowings

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