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

Bharat Realty Ltd borrowed ₹50,00,000 at 10% p.a. specifically for constructing a plant (a qualifying asset). Interest for the full year was incurred. Of the loan, ₹10,00,000 was kept in a short-term deposit for 6 months before use, earning 6% p.a. How much interest is capitalised for the year?

₹4,70,000 is capitalised. Actual interest on the specific loan is ₹5,00,000. Income from temporarily investing ₹10,00,000 at 6% for six months is ₹30,000, which Ind AS 23 requires to be deducted, giving ₹4,70,000.

  1. A₹5,00,000
  2. B₹4,70,000Correct
  3. C₹5,30,000
  4. D₹4,00,000

Explanation

Actual interest = 50,00,000 × 10% = 5,00,000. Investment income = 10,00,000 × 6% × 6/12 = 30,000. Eligible cost = 5,00,000 − 30,000 = 4,70,000. Using ₹5,30,000 adds the income instead of deducting it, and ₹5,00,000 ignores it.

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