Accounting Treatment of Interest Earned on Mobilisation Advance Provided to Vendors

Following the provisions of para 21 of Ind AS 16, Property, Plant and Equipment, the accountant of the company has recognised “the interest recovered and accrued on mobilisation advance” received from vendors who have opted for mobilisation advance for expansion of the project/ asset(s) as interest income of the Company and credited to the Statement of Profit and Loss.

Para 21 of the Ind AS 16 states that some operations occur in connection with the construction or development of an item of property, plant and equipment, but are not necessary to bring the item to the location and condition necessary for it to be capable of operating in the manner intended by management. These incidental operations may occur before or during the construction or development activities.

However, the statutory auditor of the company is of the view that the interest recovered and accrued on mobilisation advance should be adjusted against the project cost rather than recognising as interest income as the same is inextricably linked to construction and acquisition of fixed assets and has a direct nexus to the project.

The management of the company approached the Expert Advisory Committee for its opinion on the matter and to resolve the issue of accounting of interest on mobilisation advance.

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