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    (AS 16)Borrowing Costs

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    ScopeScope

    ThisThis StatementStatement shouldshould bebe appliedapplied ininaccountingaccounting forfor borrowingborrowing costscosts..

    ThisThis StatementStatement doesdoes notnot dealdeal withwith thethe

    actualactual oror imputedimputed costcost ofof ownersowners

    equity,equity, includingincluding preferencepreference sharesharecapitalcapital notnot classifiedclassified asas aa liabilityliability..

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    DefinitionsDefinitions

    TheThe followingfollowing termsterms areare usedused inin thisthisStatementStatement withwith thethe meaningsmeanings specifiedspecified::

    BorrowingBorrowing costscosts areare interestinterest andand otherothercostscosts incurredincurred byby anan enterpriseenterprise ininconnectionconnection withwith thethe borrowingborrowing ofof fundsfunds..

    A A qualifyingqualifying assetasset isis anan assetasset thatthatnecessarilynecessarily takestakes aa substantialsubstantial periodperiod ofof timetimetoto getget readyready forfor itsits intendedintended useuse oror salesale..

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    DefinitionsDefinitions

    Borrowing costs may include:Borrowing costs may include:

    interest and commitment charges on bank borrowings and otherinterest and commitment charges on bank borrowings and othershortshort--term and longterm and long--term borrowings;term borrowings;

    amortisation of discounts or premiums relating to borrowings;amortisation of discounts or premiums relating to borrowings;

    amortisation of ancillary costs incurred in connection with theamortisation of ancillary costs incurred in connection with thearrangement of borrowings;arrangement of borrowings;

    financefinance chargescharges inin respectrespect ofof assetsassets acquiredacquired underunder financefinance leasesleases ororunderunder otherother similarsimilar arrangementsarrangements;; andand

    exchangeexchange differencesdifferences arisingarising fromfrom foreignforeign currencycurrency borrowingsborrowings toto thetheextentextent thatthat theythey areare regardedregarded asas anan adjustmentadjustment toto interestinterest costscosts..

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    BorrowingBorrowing costscosts includeinclude interestinterest paidpaid onon shortshort--termtermborrowingsborrowings suchsuch asas workingworking capitalcapital financefinance thatthatexistedexisted whenwhen thethe qualifyingqualifying assetasset waswas beingbeingpurchased,purchased, constructedconstructed oror producedproduced..

    BorrowingBorrowing costscosts excludeexclude actualactual oror imputedimputed costcost ofofownersowners equity,equity, includingincluding preferencepreference shareshare capitalcapitalnotnot classifiedclassified asas aa liabilityliability howeverhowever interstinterst (dividend)(dividend)paidpaid onon preferencepreference sharesshares willwill fallfall withinwithin thethe

    definitiondefinition ofof borrowingborrowing costscosts..

    BorrowingBorrowing costcost excludesexcludes salessales taxtax deferraldeferral asas salessalestaxtax deferraldeferral isis anan operatingoperating liabilityliability andand cannotcannot bebetermedtermed asas loanloan..

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    BorrowingBorrowing costscosts incurredincurred onon constructingconstructing ororacquiringacquiring aa qualifyingqualifying asset,asset, whichwhich takestakes aasubstantialsubstantial periodperiod ofof timetime forfor construction,construction, isiscapitalisedcapitalised asas costcost ofof thatthat assetasset..

    AllAll otherother BorrowingBorrowing costscosts areare chargedcharged toto P&LP&LAccountAccount..

    BorrowingBorrowing costscosts incurredincurred onlyonly uptoupto thethe stagestage thetheassetasset isis putput toto useuse areare capitalisedcapitalised..

    Principles ofBorrowing CostPrinciples ofBorrowing Cost

    CapitalisationCapitalisation

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    AA qualifyingqualifying assetasset isis anan assetasset thatthat necessarilynecessarily takestakes aa substantialsubstantial periodperiod ofoftimetime toto getget readyready forfor itsits intendedintended useuse oror salesale..

    AssetsAssets thatthat areare readyready forfor theirtheir intendedintended useuse oror salesale whenwhen acquiredacquired areare notnottermedtermed asas qualifyingqualifying assetsassets..

    ExamplesExamples ofof qualifyingqualifying assetsassets areare manufacturingmanufacturing plants,plants, powerpower generationgenerationfacilities,facilities, inventoriesinventories thatthat requirerequire aa substantialsubstantial periodperiod ofof timetime toto bringbring themthemtoto aa saleablesaleable condition,condition, andand investmentinvestment propertiesproperties.. OtherOther investments,investments, andandthosethose inventoriesinventories thatthat areare routinelyroutinely manufacturedmanufactured oror otherwiseotherwise producedproduced ininlargelarge quantitiesquantities onon aa repetitiverepetitive basisbasis overover aa shortshort periodperiod ofof time,time, areare notnotqualifyingqualifying assetsassets.. AssetsAssets thatthat areare readyready forfor theirtheir intendedintended useuse oror salesale whenwhen

    acquiredacquired alsoalso areare notnot qualifyingqualifying assetsassets..

    BorrowingBorrowing costscosts relatingrelating toto sugarsugar heldheld inin stockstock cannotcannot bebe capitalisedcapitalised becausebecauseitit isis notnot attributableattributable toto thethe acquisitionacquisition oror productionproduction ofof thethe assetasset..

    Qualifying AssetsQualifying Assets

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    The The issueissue asas toto what what constitutesconstitutes aa substantialsubstantial period period ofof timetime primarilyprimarilydependsdepends onon thethe factsfacts andand circumstancescircumstances ofof eacheach casecase.. However,However, ordinarily,ordinarily, aaperiodperiod ofof twelvetwelve monthsmonths isis consideredconsidered asas substantialsubstantial periodperiod ofof timetime unlessunless aashortershorter oror longerlonger period period cancan bebe justifiedjustified onon thethe basisbasis ofof factsfacts andandcircumstancescircumstances ofof thethe casecase.. InIn estimatingestimating thethe period, period, timetime which which anan assetassettakes,takes, technologicallytechnologically andand commercially,commercially, toto getget itit readyready forfor itsits intendedintended useuseoror salesale shouldshould bebe consideredconsidered..

    TheThe followingfollowing assetsassets ordinarilyordinarily taketake twelvetwelve monthsmonths oror moremore toto getget readyready forforintendedintended useuse oror salesale unlessunless thethe contrarycontrary cancan bebe provedproved byby thethe enterpriseenterprise::

    ii.. assetsassets thatthat areare constructedconstructed oror otherwiseotherwise produced produced forfor anan enterprisesenterprises ownownuse,use, ee..gg..,, assetsassets constructedconstructed underunder majormajor capitalcapital expansionsexpansions..

    iiii assetsassets intendedintended forfor salesale oror leaselease thatthat areare constructedconstructed oror otherwiseotherwiseproduced produced asas discretediscrete projects projects (for(for example,example, shipsships oror realreal estateestatedevelopments)developments)..

    InIn casecase ofof inventories,inventories, substantialsubstantial periodperiod ofof timetime isis consideredconsidered toto bebe involvedinvolvedwherewhere timetime isis thethe majormajor factorfactor inin bringingbringing aboutabout aa changechange inin thethe conditioncondition ofofinventoriesinventories.. ForFor example,example, liquorliquor isis oftenoften requiredrequired toto bebe keptkept inin storestore forfor moremore

    thanthan twelvetwelve monthsmonths forfor maturingmaturing..

    ASIASI--11--Substantial Period of TimeSubstantial Period of Time

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    Recognition of Borrowing CostsRecognition of Borrowing Costs

    BorrowingBorrowing costscosts thatthat areare directlydirectly attributableattributable toto thetheacquisition,acquisition, constructionconstruction oror productionproduction ofof aa qualifyingqualifying assetassetshouldshould bebe capitalisedcapitalised asas partpart ofof thethe costcost ofof thatthat assetasset.. TheThe

    amountamount ofof borrowingborrowing costscosts eligibleeligible forfor capitalisationcapitalisation shouldshouldbebe determineddetermined inin accordanceaccordance with with thisthis StatementStatement.. OtherOtherborrowingborrowing costscosts shouldshould bebe recognisedrecognised asas anan expenseexpense inin thetheperiodperiod inin whichwhich theythey areare incurredincurred..

    B

    orrowingB

    orrowing costscosts areare capitalisedcapitalised asas part part ofof thethe costcost ofof aaqualifyingqualifying assetasset whenwhen itit isis probable probable thatthat theythey willwill resultresult ininfuturefuture economiceconomic benefitsbenefits toto thethe enterpriseenterprise andand thethe costscosts cancanbebe measuredmeasured reliablyreliably.. OtherOther borrowingborrowing costscosts areare recognisedrecognisedasas anan expenseexpense inin thethe periodperiod inin whichwhich theythey areare incurredincurred..

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    Commencement ofCommencement ofCapitalisationCapitalisation

    oo TheThe capitalisationcapitalisation of of borrowingborrowing costscosts asas partpart ofof thethe costcost of of aa qualifyingqualifying assetassetshouldshould commencecommence whenwhen allall thethe followingfollowing conditionsconditions areare satisfiedsatisfied::

    expenditureexpenditure for for thethe acquisition,acquisition, constructionconstruction oror production production of of aa qualifyingqualifyingassetasset isis beingbeing incurredincurred;;

    borrowingborrowing costscosts areare beingbeing incurredincurred;; andand

    activitiesactivities thatthat areare necessarynecessary toto prepareprepare thethe assetasset for for itsits intendedintended useuse oror salesaleareare inin progressprogress..

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    CapitalisationCapitalisation ofof borrowingborrowing costscosts shouldshould bebe suspendedsuspendedduringduring extendedextended periods periods inin which which activeactive developmentdevelopment isisinterruptedinterrupted.. ForFor exampleexample;; securitysecurity maintenance,maintenance, regulatoryregulatoryfollowfollow upup andand compliancecompliance etcetc..

    CapitalisationCapitalisation ofof BorrowingBorrowing costscosts isis alsoalso notnot suspendedsuspendedwhen when therethere isis aa temporarytemporary delaydelay.. ForFor example,example,

    capitalisationcapitalisation continuescontinues duringduring thethe extendedextended periodperiod neededneededforfor inventoriesinventories toto maturemature oror thethe extendedextended period period duringduringwhich which highhigh water water levelslevels delaydelay constructionconstruction ofof aa bridge,bridge, ififsuchsuch highhigh waterwater levelslevels areare commoncommon duringduring thethe constructionconstructionperiodperiod inin thethe geographicgeographic regionregion involvedinvolved..

    Suspension ofCapitalisationSuspension ofCapitalisation

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    Cessation ofCapitalisationCessation ofCapitalisation

    CapitalisationCapitalisation of of borrowingborrowing costscosts shouldshould ceasecease whenwhen substantiallysubstantially allall thethe activitiesactivities necessarynecessary toto preparepreparethethe qualifyingqualifying assetasset forfor itsits intendedintended useuse oror salesale areare completecomplete..

    AnAn assetasset isis normallynormally readyready forfor itsits intendedintended useuse oror salesale when when itsits physicalphysicalconstructionconstruction oror production production isis completecomplete eveneven thoughthough routineroutine administrativeadministrative

    workwork mightmight stillstill continuecontinue.. IfIf minorminor modifications,modifications, suchsuch asas thethe decorationdecoration ofof aapropertyproperty toto thethe usersusers specification,specification, areare allall thatthat areare outstanding,outstanding, thisthis indicatesindicates

    thatthat substantiallysubstantially allall thethe activitiesactivities areare completecomplete..

    WhenWhen thethe constructionconstruction ofof aa qualifyingqualifying assetasset isis completedcompleted inin partsparts andand aa completedcompleted partpart isis capablecapable of ofbeingbeing usedused whilewhile constructionconstruction continuescontinues forfor thethe otherother parts,parts, capitalisationcapitalisation of of borrowingborrowing costscosts inin relationrelationtoto aa part part shouldshould ceasecease whenwhen substantiallysubstantially allall thethe activitiesactivities necessarynecessary toto prepare prepare thatthat part part for for itsitsintendedintended useuse oror salesale areare completecomplete..

    AA businessbusiness park park comprisingcomprising severalseveral buildings,buildings, eacheach ofof which which cancan bebe usedusedindividually,individually, isis anan exampleexample ofof aa qualifyingqualifying assetasset forfor which which eacheach partpart isis capablecapableofof beingbeing usedused whilewhile constructionconstruction continuescontinues forfor thethe otherother partsparts.. AnAn exampleexample ofof aaqualifyingqualifying assetasset thatthat needsneeds toto bebe completecomplete beforebefore anyany part part cancan bebe usedused isis ananindustrialindustrial plantplant involvinginvolving severalseveral processesprocesses whichwhich areare carriedcarried outout inin sequencesequence atatdifferentdifferent partsparts ofof thethe plantplant withinwithin thethe samesame site,site, suchsuch asas aa steelsteel millmill..

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    BorrowingBorrowing costcost includesincludes exchangeexchange differencesdifferences arisingarisingfromfrom foreignforeign currencycurrency borrowingsborrowings toto thethe extentextent thatthattheythey areare regardedregarded asas adjustmentadjustment toto interestinterest costscosts.. TheThecostscosts thatthat areare incurredincurred prepre--installationinstallation ofof anan assetasset areare

    capitalisedcapitalised andand thosethose thatthat areare incurredincurred postpost installationinstallationofof anan assetasset areare chargedcharged toto revenuerevenue..

    ForFor exampleexample;; SometimesSometimes foreignforeign currencycurrency loansloans areare

    availedavailed atat reducedreduced interestinterest ratesrates.. However,However, somesome ofof thethebenefitbenefit ofof lowlow interestinterest raterate isis erodederoded byby adverseadversemomentmoment inin foreignforeign currencycurrency ratesrates.. That That portionportion onlyonlycancan bebe capitalisedcapitalised underunder ASIASI--1010..

    Borrowing Cost IncludesBorrowing Cost Includes

    Exchange Differences (ASIExchange Differences (ASI--10)10)

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    Burning IssuesBurning Issues

    ProportionateProportionate interestinterest onon fundfund utilizedutilizedincludingincluding onon advancesadvances mademade toto supplierssuppliers forfor thethequalifyingqualifying assetasset shouldshould bebe capitalisedcapitalised.. The The loanloan

    usedused forfor working working capitalcapital shouldshould notnot bebecapitalisedcapitalised..

    InterestInterest expensesexpenses onceonce capitalisedcapitalised correctlycorrectly ininaccordanceaccordance withwith ASAS--1616,, cannotcannot bebe decapitaliseddecapitalisedthereafterthereafter eveneven ifif thethe interestinterest amountamount isis waivedwaived..

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    BorrowingBorrowing costscosts incurredincurred duringduring thethe normalnormalperiodperiod (( notnot duringduring abnormalabnormal period period )) ofof trialtrial runrunshouldshould bebe capitalisedcapitalised..

    InvestmentsInvestments areare notnot qualifyingqualifying assetsassets underunder ASAS--1616,, hencehence interestinterest cannotcannot bebe capitalisedcapitalised.. AsAs

    investmentsinvestments areare immediatelyimmediately readyready forfor use,use,unlikeunlike plantplant oror factory,factory, which which requiresrequires timetime forforitsits constructionconstruction..

    Burning IssuesBurning Issues

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    Disclosures in FinancialDisclosures in Financial

    StatementsStatementsoo TheThe financial financial statementsstatements shouldshould disclosedisclose::

    thethe accountingaccounting policypolicy adoptedadopted forfor borrowingborrowing costscosts;; andand

    thethe amountamount ofof borrowingborrowing costscosts capitalisedcapitalised duringduring thethe periodperiod..

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    Thank You


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