Borrowing Cost

Borrowing Cost means any charge or expenses on debt obligation or borrowed funds which include the following:
      a. Interest and other similar costs 
      b. Amortization of Discount on Issue of Debenture

      c. Commitment Charges
      d. Interest in the nature of finance lease.
      e. Exchange difference in the nature of finance. 
Borrowing cost for a business tends to rise during time of economic expansion and inflation when prevailing market interest rates rises. 
Treatment of Borrowing cost: 

 1. Borrowing costs directly attributable to the acquisition, construction or production of a qualifying asset are included in the cost of the asset. Such borrowing cost should be capitalized with the cost of Qualifying Asset. 
             Journal Entry: Cost of  Qualifying Asset A/c...............Dr
                                                 To Interest or Borrowing Cost A/c
                                (Being amount of borrowing cost included in the cost of asset) 
2. Borrowing cost on other items (other than qualifying asset) are recognized as an expense and shown in the debit side of Profit and Loss Account. 
              Journal Entry: Profit and Loss A/c...........Dr
                                              To Borrowing Cost A/c
                                            (Being amount written off)

Qualifying Asset: 
  Qualifying Assets are those asset which take substantial time to get ready for its intended use or sale. The time period of 12 months can be considered as the substantial time period. 
 Examples of Qualifying Asset: 
  Plant and Machinery, Building, Ships, Alcohol or Liquor