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CA Final · Financial Reporting · Ind AS 23 Borrowing Costs

A parent company has its own borrowings and a subsidiary has separate borrowings at a different rate. The subsidiary is building a qualifying asset funded from general borrowings. Under Ind AS 23, how should the weighted average of borrowing costs be determined?

It depends on circumstances. Ind AS 23 allows either including all borrowings of the parent and its subsidiaries in the weighted average, or letting each subsidiary use a weighted average of its own borrowings, whichever is appropriate. No single approach is mandated.

  1. ADepending on circumstances, either all borrowings of the parent and subsidiaries are included, or the subsidiary uses a weighted average of its own borrowingsCorrect
  2. BAlways only the parent's borrowings are included
  3. CAlways only the subsidiary's own borrowings are included
  4. DAlways a simple average of all group interest rates

Explanation

Ind AS 23 says in some circumstances it is appropriate to include all borrowings of the parent and its subsidiaries, and in others for each subsidiary to use its own weighted average. It is therefore a matter of judgement, not a fixed rule. The other options each impose a single mandatory approach.

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