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CA Final · Financial Reporting · Ind AS 23 Borrowing Costs

Bharat Infra Ltd borrowed Rs 10 crore specifically at 9% p.a. to build a plant that is a qualifying asset. For the year, the whole amount was drawn on 1 April. Part of the funds, Rs 4 crore, was not needed for three months and was temporarily invested in a bank deposit, earning Rs 6 lakh. Under Ind AS 23, what amount of borrowing cost is eligible for capitalisation for the year, assuming construction is active throughout?

Rs 84 lakh is capitalised. For funds borrowed specifically for a qualifying asset, Ind AS 23 allows actual borrowing costs less investment income earned on temporary investment of those funds. Interest is Rs 90 lakh and the deposit income is Rs 6 lakh, so the net eligible amount is Rs 84 lakh.

  1. ARs 90 lakh
  2. BRs 84 lakhCorrect
  3. CRs 96 lakh
  4. DRs 54 lakh

Explanation

For a specific borrowing, eligible cost is actual borrowing cost less investment income on temporary investment of those funds. Actual interest = 10 crore x 9% = Rs 90 lakh. Less Rs 6 lakh = Rs 84 lakh. Rs 90 lakh ignores the investment income deduction; Rs 96 lakh wrongly adds it.

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