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What will be journal entries for borrowing money for construction works, recording capitalisation, recoding expense for stopping capitalisation and for income from extra loan money? Thank you!
Hi,
The normal entry for interest on a loan is to DR Finance costs CR Interest payable. If we meet the criteria for capitalisation then the debit entry is to PPE as opposed to finance costs.
As soon as we do not capitalise the borrowing costs, we go back to the original entry to finance costs.
Thanks
Hi sir
If we are capitalising borrowing cost , that part is never included as part of finance cost in PL ?
Hi,
Yes, that is correct. If we are capitalising the borrowing costs then they will not appear in finance costs on the statement of profit or loss. Once capitalisation ceases then the costs will go back to being recognised through profit or loss.
Thanks
Hello,
Will the capitalized interest be in the SoFP as accrued interest (current liabilities) along with the amount in the SoCI?
Thank you
Hi,
When we recognise the interest when it is not capitalised we would DR Finance cost (SPL) CR Interest payable (SFP).
When we capitalise it the debit entry is then different DR PPE (SFP) CR Interest payable (SFP)
Thanks
Hello everyone here!
My question is about the double entry of the borrowing cost.
Above there the entery will be DR PPE and CR Interest accrued, but don’t we first prepare SPL and SFP if we have nothing for interest(Finance cost) in the SPL, How we show Finance cost in the SFP? Thanks in advanceIf the interest has been capitalised then it will not appear in the SPL under finance costs. It is shown instead as part of the cost of the asset. If there are other finance costs incurred elsewhere in the business then these will be shown on the face of the SPL.
Thanks
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