A question has been raised by many of you whether interest can be included in closing stock valuation?
I would like to reply to this question with reference to AS-2, AS-16 and ASI-1.
As per AS-2, interest can not be included in Cost of inventory, except to the extent permissible under AS-16. AS-16 says that borrowing cost can be capitalized on qualifying asset if recognition criteria given in AS-16 is fulfilled.
As per AS-16, qualifying asset means an asset which necessarily takes substantial period of time to get ready for intended use.
Hence if inventory takes substantial period of time to get ready for intended use, interest can be capitalized on cost of inventory.
Note: As per ASI-1 there is a rebuttable assumption that substantial period of time means a period of more than 12 months.
