Skip to content

Corporate Financial Reporting · Borrowing Costs (Ind AS 23)

Specific and General Borrowings: Computing Eligible Cost under Ind AS 23

Updated 11 October 2026 · Fact-checked

For specific borrowings, capitalise actual borrowing cost for the period less investment income on temporary investment of the unused funds. For general borrowings, multiply the expenditure on the qualifying asset by a capitalisation rate, the weighted average cost of general borrowings. The amount capitalised cannot exceed borrowing cost actually incurred.

Understand Specific and General Borrowings: Computing Eligible Cost

A qualifying asset takes a substantial period to get ready for its intended use or sale. Borrowing costs directly attributable to it are added to its cost. Ind AS 23 (para 10) describes them as costs that would have been avoided if the expenditure on the asset had not been made.

There are two cases. In the first, you borrow specifically for the asset. The cost is easy to trace. Under para 12, the eligible amount is the actual borrowing cost incurred during the period less any investment income on temporary investment of those borrowings. Para 13 explains why: funds are often drawn before they are spent, and the interest earned while they sit idle is deducted.

In the second case, you borrow generally and use the funds for the asset. Para 14 says you apply a capitalisation rate to the expenditure on that asset. The rate is the weighted average of the borrowing costs of all borrowings outstanding during the period. You leave out borrowings made specifically for a qualifying asset, until substantially all the activities needed to prepare that asset are complete.

Two safeguards apply. The amount capitalised in a period cannot exceed the borrowing costs incurred in that period (para 14). Expenditure includes only payments of cash, transfers of other assets or assumption of interest-bearing liabilities, reduced by progress payments and grants received (para 18). The average carrying amount of the asset, including borrowing costs already capitalised, is normally a reasonable approximation of the expenditure (para 18).

For a group, para 15 says that sometimes all borrowings of the parent and its subsidiaries are used for the weighted average, and sometimes each subsidiary uses the rate of its own borrowings. Judgement is needed.

Key rules to remember

Specific borrowings: eligible cost
Eligible cost = Actual borrowing cost incurred in the period − Investment income on temporary investment of the unused funds
Para 12 and 13. Apply only for the period the asset qualifies for capitalisation.
Capitalisation rate (general borrowings)
Capitalisation rate = (Borrowing costs on general borrowings for the period ÷ Weighted average general borrowings outstanding) × 100
Para 14. Exclude borrowings made specifically for a qualifying asset while that asset is still being prepared.
Eligible cost (general borrowings)
Eligible cost = Weighted average expenditure on the asset (funded by general borrowings) × Capitalisation rate
Weight each expenditure by months outstanding ÷ months in the period.
Ceiling
Amount capitalised ≤ Borrowing costs actually incurred in the period
Para 14. Apply separately to the general borrowings pool.
Expenditure
Expenditure = Cash paid + other assets transferred + interest-bearing liabilities assumed − progress payments and grants received
Para 18. The average carrying amount is normally a reasonable approximation.

How to solve Specific and General Borrowings: Computing Eligible Cost questions

Use the same sequence for every question. Always separate specific from general first.

  1. 1Confirm the asset is a qualifying asset and fix the capitalisation period: the commencement date (expenditure, borrowing costs and activities all present, para 17) up to the date the asset is ready.
  2. 2List the specific borrowings. Compute their interest for the capitalisation period.
  3. 3Compute investment income earned on unused specific funds for the same period. Deduct it from the specific interest (para 12).
  4. 4Work out the expenditure on the asset and subtract the part met from specific borrowings and any grants or progress payments. The balance is funded by general borrowings.
  5. 5Weight each balance by the months it was outstanding to get the weighted average expenditure.
  6. 6Compute the capitalisation rate from general borrowings only (weighted average interest cost ÷ weighted average borrowings). Apply it to the weighted average expenditure.
  7. 7Compare the result with the actual interest on general borrowings. Capitalise the lower amount.
  8. 8Add specific and general amounts to get the borrowing cost capitalised. Charge the rest to profit or loss. Show the disclosures in para 26: amount capitalised and rate used.

Quickest way: Two-bucket shortcut

When to use it: Use it when the question gives annual rates, a few dated payments and one specific loan.

  1. Draw a small timeline of dates and payments.
  2. Bucket 1: specific loan interest for the period minus idle-fund income. Write the figure.
  3. Bucket 2: the spend beyond the specific loan, times months outstanding ÷ 12, times the general rate.
  4. If the general rate is a mix of loans, take total interest ÷ total average loans first.
  5. Check the cap: bucket 2 must not exceed total general interest.
  6. Total = Bucket 1 + Bucket 2. Write the balance as an expense.

Common mistakes in Specific and General Borrowings: Computing Eligible Cost

  • Capitalising full specific interest and ignoring income on idle funds

    Students remember interest but forget the deduction in para 12.

    Fix: Always ask whether any money was parked in deposits before it was spent. If yes, deduct the income.

  • Including the specific loan in the capitalisation rate

    Students average all loans together.

    Fix: Exclude loans taken specifically for the qualifying asset while it is being prepared (para 14).

  • Applying the rate to the full cost of the asset or to the closing balance

    Time weighting feels like extra work.

    Fix: Weight each expenditure by the months it was outstanding, and apply the rate to the weighted average.

  • Forgetting to cap the capitalised amount at interest actually incurred

    The rate times expenditure gives a number that looks final.

    Fix: Compare it with total general interest for the period and take the lower.

  • Starting capitalisation at the loan date

    Students link capitalisation to borrowing alone.

    Fix: Start only when expenditure, borrowing costs and preparation activities all exist (para 17).

  • Not reducing expenditure by grants or progress payments

    The adjustment sits in a different paragraph.

    Fix: Net grants and progress payments received from expenditure (para 18) before weighting.

Worked examples

Example 1

On 1 April 2026, Kaveri Infra Ltd took a specific loan of ₹10,00,000 at 10% p.a. to build a warehouse (a qualifying asset). The whole loan was spent in two parts: ₹4,00,000 on 1 April 2026 and ₹6,00,000 on 1 October 2026. Until it was spent, the unused money was placed in a deposit earning 6% p.a. The warehouse was ready on 31 March 2027. Compute the borrowing cost to be capitalised for the year.

Show the solution
  1. Interest on the specific loan for 12 months = ₹10,00,000 × 10% = ₹1,00,000.
  2. Unused funds: ₹6,00,000 was idle from 1 April to 30 September 2026, which is 6 months.
  3. Investment income = ₹6,00,000 × 6% × 6/12 = ₹18,000.
  4. Eligible cost = ₹1,00,000 − ₹18,000 = ₹82,000.

Answer: ₹82,000 is capitalised as part of the cost of the warehouse.

Example 2

Meenakshi Textiles Ltd is building a plant. It has a specific loan of ₹20,00,000 at 9% p.a. taken on 1 April 2026 and fully spent that day on the plant. It also has general borrowings outstanding all year: ₹30,00,000 at 10% p.a. and ₹20,00,000 at 12% p.a. Further spending on the plant, funded from general borrowings, was ₹12,00,000 on 1 July 2026 and ₹6,00,000 on 1 January 2027. The plant was ready on 31 March 2027. Compute the total borrowing cost capitalised for 2026-27.

Show the solution
  1. Specific loan interest = ₹20,00,000 × 9% = ₹1,80,000. There is no idle money, so no income is deducted.
  2. General interest = ₹30,00,000 × 10% + ₹20,00,000 × 12% = ₹3,00,000 + ₹2,40,000 = ₹5,40,000.
  3. Capitalisation rate = ₹5,40,000 ÷ ₹50,00,000 = 10.8%.
  4. Weighted average expenditure = ₹12,00,000 × 9/12 + ₹6,00,000 × 3/12 = ₹9,00,000 + ₹1,50,000 = ₹10,50,000.
  5. General borrowing cost eligible = ₹10,50,000 × 10.8% = ₹1,13,400.
  6. Check the cap: ₹1,13,400 is less than ₹5,40,000 actual general interest, so it stands.
  7. Total capitalised = ₹1,80,000 + ₹1,13,400 = ₹2,93,400.

Answer: ₹2,93,400 is capitalised (₹1,80,000 specific and ₹1,13,400 general). The remaining general interest of ₹4,26,600 is charged to profit or loss.

Exam tips

  • Write the capitalisation period and the date capitalisation begins first. Marks are often given for that.
  • Show the capitalisation rate calculation separately with both numerator and denominator. Partial marks depend on it.
  • Read for words like 'temporarily invested' or 'deposited'. They signal that investment income must be deducted.
  • State the para 14 cap in one line, even when it does not bind. Examiners look for it.
  • In the case-scenario MCQs, check whether the loan is specific or general before touching the numbers.

Practice questions from Borrowing Costs (Ind AS 23)

Specific and General Borrowings: Computing Eligible Cost in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Specific and General Borrowings: Computing Eligible Cost: frequently asked questions

How do I calculate the capitalisation rate under Ind AS 23?

Divide the borrowing costs of the general borrowings outstanding in the period by their weighted average amount, and express it as a percentage. Leave out borrowings made specifically for the qualifying asset until the asset is substantially ready. Para 14 gives this rule.

What is the difference between specific and general borrowings?

Specific borrowings are taken for the purpose of obtaining a particular qualifying asset, so their cost is traced directly, less investment income. General borrowings are funds borrowed generally and used for the asset, so you apply a capitalisation rate to the expenditure.

Is investment income deducted for general borrowings?

The text of Ind AS 23 deducts investment income on temporary investment only for funds borrowed specifically (paras 12 and 13). For general borrowings you apply the rate to expenditure and cap the result at interest incurred.

Can I use the closing carrying amount instead of weighted expenditure?

Para 18 says the average carrying amount of the asset, including borrowing costs previously capitalised, is normally a reasonable approximation of the expenditure. In exams, use dated expenditure if it is given.