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CMA Final · Corporate Financial Reporting · Borrowing Costs (Ind AS 23)

A group has a parent and a subsidiary, each with its own borrowings. The subsidiary builds a qualifying asset. According to Ind AS 23, how should the weighted average of borrowing costs be determined for the group's capitalisation rate?

Ind AS 23 permits judgement: in some circumstances all borrowings of the parent and its subsidiaries are included in the weighted average, while in others each subsidiary uses a weighted average of its own borrowings. Neither approach applies always.

  1. AAlways use only the subsidiary's own borrowings
  2. BAlways use all borrowings of the parent and subsidiaries combined
  3. CDepending on circumstances, either include all borrowings of the parent and its subsidiaries, or use the subsidiary's own weighted averageCorrect
  4. DUse the simple average of the lowest and highest rates in the group

Explanation

Ind AS 23 says that in some circumstances it is appropriate to include all borrowings of the parent and its subsidiaries in the weighted average, and in other circumstances each subsidiary should use the weighted average of its own borrowings. Neither approach is mandatory in all cases.

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