Classification and Disclosure of Late Payment Interest in Financial Statements

A joint venture company set up for a gas-based Ammonia-Urea plant incurred Rs. 79.88 crore in late payment charges in 2023-24 due to delayed payments under a gas sales agreement. Initially classified as “Finance Cost” in the financial statements, the auditor raised concerns, recommending the charges be reclassified as “Other Expenses” according to the “Guidance Note on Division II – Ind AS Schedule III to the Companies Act, 2013.” Additionally, the auditor suggested that the significant increase in late payment interest be disclosed as an exceptional item under Ind AS 1.

In this story, we have discussed the appropriate classification and presentation of late payment interest incurred by the company under a sales agreement. It explores whether the interest should be disclosed under “Finance Costs” or “Other Expenses” in the financial statements, considering the principles of Ind AS 1, materiality, and disclosure requirements. It also addresses the auditor’s concerns about classifying such expenses as exceptional items.

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