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CA Final · Financial Reporting · Ind AS 23 Borrowing Costs

Ananya Infra Ltd is reviewing which of its assets are qualifying assets under Ind AS 23. A qualifying asset is one that necessarily takes a substantial period of time to get ready for its intended use or sale. Which of the following assets would ordinarily be a qualifying asset?

The thermal power plant is the qualifying asset because it necessarily needs a substantial period, about three years, to become ready for its intended use. Ready-to-sell stock, a van and installed software are available almost immediately, so borrowing costs on them are not capitalised.

  1. AA stock of packaged biscuits that is ready for sale on purchase
  2. BA thermal power plant that needs about three years of construction before it can operateCorrect
  3. CA delivery van bought ready for use and registered within a week
  4. DA software licence installed and used on the day of purchase

Explanation

A qualifying asset necessarily takes a substantial period to get ready for its intended use or sale. A power plant with a three-year construction period meets this test. The other assets are ready for use or sale almost immediately, so borrowing costs on them are expensed.

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