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Clarification for Accounting Standard 10 w.r.t Capitalization of Costs

The Ministry of corporate affairs has issued a general circular no. 35 with respect to provide clarification on Accounting Standard 10 issued by Institute of Chartered Accountants of India. The clarifications were sought with respect to Capitalization of borrowing costs incurred during the extended delay in commercial production beyond the developer’s control and whether Capitalization of power plant should be product wise or unit wise.

The matter has been expressly examinedClarification for Accounting Standard 10 w.r.t Capitalization of Costs in consultations with the ICAI and Accounting Standard Board and the solutions were as follows.

With respect to the Accounting standard 10 and 16 which contains the provisions for Capitalization of various costs , only those costs should be capitalised in respect of  fixed assets which increase the worth of the assets.

Further the costs incurred during the extended delay in the commercial production cannot be capitalized.

Lastly, if the project gets completed in parts so the capitalization of costs shall be on the apportionment basis and be capitalized only with reect to that completed portion of the project.

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