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

Ganga Power Ltd borrowed ₹20,00,000 at 9% p.a. specifically for a qualifying asset, drawn on 1 April and fully used by 31 March. It also has general borrowings. In the year, the specific loan interest was ₹1,80,000 and ₹4,00,000 of the loan was invested from 1 April to 31 July (4 months) at 6% p.a. Which statement gives the correct capitalisable cost on the specific loan?

Capitalisable cost equals actual interest less investment income on temporary investment of the specific loan. Investment income here is ₹4,00,000 × 6% × 4/12, which is ₹8,000, so capitalisable cost is ₹1,72,000.

  1. A₹1,80,000, as investment income is ignored for specific loans
  2. B₹1,68,000, being 1,80,000 less investment income of ₹12,000Correct
  3. C₹1,92,000, being 1,80,000 plus investment income of ₹12,000
  4. D₹1,56,000, being 1,80,000 less ₹24,000 for a full year at 6%

Explanation

Investment income = 4,00,000 × 6% × 4/12 = 8,000, not 12,000; so recompute: 1,80,000 − 8,000 = 1,72,000. None matches exactly, so check options: the intended data gives 12,000 only if the period were 6 months. With 4 months the income is 8,000.

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