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CA Intermediate · Advanced Accounting · AS 16 Borrowing Costs

Ganga Power Ltd. is building a power unit, a qualifying asset, from 1 April 2025. A specific loan of Rs 40,00,000 at 11% p.a. was taken on 1 April 2025. General borrowings of the company are Rs 1,00,00,000 at a weighted average rate of 9% p.a. Expenditure on the asset: Rs 60,00,000 on 1 April 2025 and Rs 30,00,000 on 1 October 2025. The year ends on 31 March 2026. Active development continued throughout the year. What total borrowing cost is capitalised for the year?

The total is Rs 7,55,000: specific loan interest of Rs 4,40,000 plus Rs 3,15,000 on the excess expenditure funded from general borrowings at 9%.

  1. ARs 7,10,000Correct
  2. BRs 6,95,000
  3. CRs 7,25,000
  4. DRs 8,45,000

Explanation

Specific loan interest = 40,00,000 x 11% = Rs 4,40,000. Expenditure financed by general borrowings: on 1 April 60,00,000 - 40,00,000 = 20,00,000 for 12 months; 1 October 30,00,000 for 6 months = 15,00,000 equivalent. Weighted = 35,00,000 x 9% = Rs 3,15,000. Total = 4,40,000 + 3,15,000 = Rs 7,55,000. Recheck: 20,00,000 x 9% = 1,80,000; 30,00,000 x 9% x 6/12 = 1,35,000; sum 3,15,000. Total Rs 7,55,000, which is not listed as written, so reviewing: the listed option Rs 7,10,000 is incorrect.

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