Treatment of Interest

System
System Posts: 100,534 🤖 Admin 🤖
edited 10:28AM in AAT student discussion
In case of goods imported, where the bank charges an interest on the Letter of Credit negotiation, should we include this interest charge in the cost of sales or after contribution?<BR><BR>

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  • System
    System Posts: 100,534 🤖 Admin 🤖
    Treatment of Interest

    Hi<BR><BR>Id say cost of sales, since it is directly conected with the sale of an item.<BR><BR>neil
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Treatment of Interest

    The only circumstances in which interest would not be shown under interest payable and similar charges are when funds are borrowed in order to fund the purchase and construction of stock or fixed assets. The interest concerned must be only that which relates to vthe period of constuction, in both cases. It follows that if you are buying for resale there is no period of production and so no interest could be included as a cost of sale.<BR><BR>
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Treatment of Interest

    Hi<BR><BR>But wouldn't the accounting period in which the stock was purchased constitute the period of construction? Also in this case the borrowing/charge does relate to purchase/construction of stock.
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Treatment of Interest

    the period you can include is the actual period of construction i.e. days or weeks. <BR>Incidentally, if you do capitalise interest in this way, you should disclose any such amounts in the notes to the accounts.

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