A company has borrowed substantial funds for construction of a new plant. The work on the plant is completed and the plant is ready to be put to use on 28th February 2003. The company capitalizes the interest on borrowed fund for the period up to 31st March, 2003.
Financial costs should act be capitalized to the extent that they relate to periods after the relevant fixed assets are ready to be put to use. Qualification should be made in audit report and amount an interest for the month of March which should not be capitalized should be quantified. It should also be stated that fixed assets as well as profits and reserves have been overstated to that extent.
An enterprise has made addition to the existing fixed assets which is an integral part of that assets.