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CA Final · Financial Reporting · Ind AS 23 Borrowing Costs

Bharat Engineering Ltd and its subsidiary Kaveri Components Ltd both borrow funds. The parent's finance team asks how to compute the weighted average capitalisation rate on general borrowings used to obtain a qualifying asset in the subsidiary. Which approach is consistent with Ind AS 23?

The correct approach depends on circumstances. Ind AS 23 says it may be appropriate to include all borrowings of the parent and its subsidiaries in the weighted average, while in other cases each subsidiary should use the weighted average of its own borrowings. Rigid single rules are not prescribed.

  1. AAlways use only the parent's borrowings, because the parent controls the group
  2. BAlways use only the subsidiary's own borrowings, because the asset is in the subsidiary
  3. CNever use a weighted average; use the highest rate among all loans
  4. DDepending on circumstances, include all borrowings of parent and subsidiaries, or use the weighted average of the subsidiary's own borrowingsCorrect

Explanation

Ind AS 23 recognises that in some circumstances it is appropriate to include all borrowings of the parent and its subsidiaries in the weighted average, and in others each subsidiary should use its own borrowings' weighted average. The fixed rules in the other options are not in the standard, and the highest-rate approach is not prescribed.

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