Comparison of ICDS-IX, AS-16 & IndAS-23 - Income Tax - Ready Reckoner - Income Tax

Topic ICDS Indian GAAP Ind AS Borrowing Costs ICDS IX relating to borrowing costs AS 16 Borrowing Costs Ind AS 23 - Borrowing Costs Meaning of Borrowing Costs Similar to Indian GAAP except that exchange differences arising from foreign currency borrowings to the extent that they are regarded as an adjustment to interest cost are not covered under this ICDS. Borrowing costs are interest and other costs incurred by an enterprise in connection with the borrowing of funds. Borrowing costs may include: (a) interest and commitment charges on bank borrowings and other short-term and long-term borrowings; (b) amortisation of discounts or premiums relating to borrowings; (c) amortisation 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; and (e) exchange differences arising from foreign currency borrowings to the extent that they are regarded as an adjustment to interest costs. Borrowing costs are interest and other costs that an entity incurs in connection with the borrowing of funds. Borrowing costs may include: (a) interest expense calculated using the effective interest method as described in Ind AS 109 , Financial Instruments; (b) finance charges in respect of finance leases recognised in accordance with Ind AS 116 , Leases; and c) exchange differences arising from foreign currency borrowings to the extent that they are regarded as an adjustment to interest costs. Period of time necessarily taken for acquisition, construction or production of asset so that asset qualifies as Qualified Asset Inventories - Period of 12 months or more to bring them into saleable condition. Fixed Assets Intangible Assets - Does not necessarily require 12 months or more period for its acquisition, construction or production. However, ICDS IX requires capitalisation of borrowing costs incurred on funds specifically borrowed for Qualifying assets as mentioned in aforesaid, Other than those borrowings which were specifically borrowed for the assets are not allowed. Only Assets (Tangible Fixed Assets, Inventories, and Investment Properties) That necessarily requires substantial period of time (Ordinarily 12 months or more) to get ready for its intended sale or use are regarded as qualifying assets. Assets can be regarded as qualifying assets even if they take less than 12 months only if in facts and the circumstances of the case is justified to do so. A qualifying asset is an asset that necessarily takes a substantial period of time to get ready for its intended use or sale. (IndAs is silent on number of months or determination of specific period to make assets as qualifying assets.) Commencement of Capitalisation The capitalisation of borrowing costs shall commence: a) in as case where funds specifically borrowed for obtaining qualifying asset, from the date on which funds were borrowed. b) in other case, from the date on which funds are utilised. The capitalisation of borrowing costs shall commence from the date all the following conditions are satisfied: a) expenditure for a acquisition, construction or production of qualifying asset is being incurred; b) borrowing costs are being incurred; c) activity that are necessary to prepare the asset for its intended use are in progress. An entity shall begin capitalising borrowing costs as part of the cost of a qualifying asset on the commencement date. The commencement date for capitalisation is the date when the entity first meets all of the following conditions:(a) it incurs expenditures for the asset (b) it incurs borrowing costs; and (c) it undertakes activities that are necessary to prepare the asset for its intended use or sale. Suspension of Capitalisation No suspension under any circumstances. Capitalization suspended during extended periods in which active development is interrupted. An entity shall suspend capitalisation of borrowing costs during extended periods in which it suspends active development of a qualifying asset. However, an entity does not normally suspend capitalising borrowing costs during a period when it carries out substantial technical and administrative work. An entity also does not suspend capitalising borrowing costs when a temporary delay is a necessary part of the process of getting an asset ready for its intended use or sale. Cessation of Capitalisation Capitalization of borrowing costs shall cease when asset is first put to use in case of qualifying asset other than inventory. Capitalization of borrowing costs shall cease when substantially all the activities necessary to prepare such inventory for its intended sale are complete. An entity shall cease capitalising borrowing costs when substantially all the activities necessary to prepare the qualifying asset for its intended use or sale are complete. When an entity completes the construction of a qualifying asset in parts and each part is capable of being used while construction continues on other parts, the entity shall cease capitalising borrowing costs when it completes substantially all the activities necessary to prepare that part for its intended use or sale.