Accounting Treatment of Borrowing Costs in Hybrid Annuity Model (HAM) Projects Under Ind AS Framework
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- Last Updated on 25 February, 2025
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This document examines whether borrowing costs, including Interest during Construction (IDC), should be included in project costs for revenue recognition or capitalized as a financial asset in Hybrid Annuity Model (HAM) projects under the Ind AS framework. It focuses on an SPV executing a highway project under a concession agreement with NHAI and evaluates the accounting treatment under Ind AS 115, Ind AS 23, and Ind AS 109.
Key issues include whether borrowing costs can be added to project costs when calculating revenue margins, given that revenue is recognized using a cost-plus-margin approach. The document also considers whether borrowing costs can be capitalized as part of the financial asset recognized under Ind AS 115, given the SPV’s contractual right to receive payments from NHAI. Additionally, it examines whether borrowing costs meet the criteria for capitalization under Ind AS 23, considering that the SPV does not own or control the road after construction. Under Ind AS 109, the document assesses whether borrowing costs can be factored into financial asset measurement or must be treated strictly as a financing expense.
Overall, this document explores whether borrowing costs should be included in project cost calculations, capitalized as part of a financial asset, or expensed separately, ensuring compliance with applicable accounting standards.
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