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CA Final · Financial Reporting · Ind AS 23 Borrowing Costs

Deccan Pharma Ltd borrowed Rs 5 crore specifically for a qualifying asset and incurred Rs 45 lakh interest in the year, while temporary investment of the unspent loan earned Rs 5 lakh. Which treatment correctly reflects Ind AS 23 for the specific borrowing?

Capitalise Rs 40 lakh. Ind AS 23 sets eligible cost on a specific borrowing as actual borrowing costs for the period less investment income earned from temporarily investing those borrowings, so Rs 45 lakh less Rs 5 lakh equals Rs 40 lakh.

  1. ACapitalise Rs 45 lakh and show Rs 5 lakh as other income
  2. BCapitalise Rs 50 lakh
  3. CCapitalise Rs 40 lakhCorrect
  4. DExpense the whole Rs 45 lakh as the loan is specific

Explanation

Eligible borrowing cost on a specific borrowing is actual cost incurred less investment income on temporary investment of those borrowings: 45 - 5 = Rs 40 lakh. Capitalising Rs 45 lakh ignores the netting; Rs 50 lakh adds the income wrongly.

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