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CA Intermediate · Advanced Accounting · AS 16 Borrowing Costs

Bharat Engineering Ltd. is constructing a qualifying asset funded from general borrowings. Expenditure on the asset during the year was Rs 30,00,000 on 1 April and Rs 20,00,000 on 1 October, with the year ending 31 March. The weighted average cost of general borrowings is 9% p.a. What is the borrowing cost to be capitalised for the year?

Rs 3,60,000 is capitalised. The weighted average expenditure is Rs 40 lakh (30 lakh for 12 months plus 20 lakh for 6 months), and applying the 9% weighted average rate of general borrowings gives Rs 3,60,000.

  1. ARs 4,50,000
  2. BRs 3,60,000
  3. CRs 3,15,000Correct
  4. DRs 2,70,000

Explanation

Weighted average expenditure = 30,00,000 x 12/12 + 20,00,000 x 6/12 = 30,00,000 + 10,00,000 = Rs 40,00,000. Capitalisation = 40,00,000 x 9% = Rs 3,60,000. Check: 30,00,000 x 9% = 2,70,000; 20,00,000 x 9% x 6/12 = 90,000; total 3,60,000. So the correct figure is Rs 3,60,000.

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