Standby, Stoppage & Borrowing Cost Incurred During Suspension of Project Due to Force Majeure Isn’t Exceptional Item
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- Last Updated on 29 January, 2024
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Due to terror attacks in the vicinity of the project site, force majeure was declared and in-situ development activities in the Project were suspended and remained suspended during the financial year. Additionally, due to such force majeure situation, incremental expenditures such as stoppage costs and standby costs were incurred in respect of the project amounting to ? 6,000 million.
The accountant of the company has not considered the said expenditure on stoppage and standby costs for capitalisation and instead charged off the said expenditure as ‘Other Expenses’ in the Statement of Profit and Loss and provided an explanatory note on the same. Also, he charged the borrowing costs to the Statement of Profit and Loss as finance costs, considering the force majeure, that capitalisation of borrowing costs amounting to ? 4,000 million has been suspended.
The auditor objected to the above practice followed by the accountant and believes that the said standby and stoppage cost and borrowing costs incurred during the period of suspension of development activities in the Project due to force majeure are exceptional items and should be presented under the head ‘Exceptional Items’ in the Statement of Profit and Loss.
To resolve this conflict, the management approached the Expert Advisory Committee (EAC) for its opinion on the correct presentation of standby, stoppage & borrowing costs incurred during the suspension of the project due to force majeure.
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