MCA after receiving number of representations seeking clarifications on capitalization of costs in cases of Competitive Bid power projects has vide General Circular No. 35/2014 dated 27th August 2014 issued a Clarification regarding Accounting Standards (AS) 10 – Capitalization of Cost. The text of the same is reproduced as below :-

1. Accounting Standards AS-10 and AS-16 prescribe the principles of capitalization of various costs based on the underlying concept that only such expenditure should be capitalized as form a part of the cost of fixed assets which increase the worth of the assets. Cost incurred during the extended delay in commencement of commercial production after the plant is otherwise ready does not increase the worth of fixed assets. Such costs cannot, therefore, be capitalized.
2. Accounting Standard AS 16, inter alia provides guidance with regard to part capitalization where some units of a project are complete. In case one of the units of the project is ready for commercial production and is capable of being used while construction continues for the other units, costs should be capitalized in relation to that part once the part is ready for commercial production.
3. It is further clarified that AS 10 and AS 16 are applicable irrespective of whether the power projects are ‘Cost Plus projects’ or ‘Competitive Bid projects’.