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CA Final · Financial Reporting · Ind AS 23 Borrowing Costs

Ganga Steels Ltd's group has a parent and a subsidiary, each with its own general borrowings, and the subsidiary is building a qualifying asset funded from general borrowings. How should the weighted average capitalisation rate be chosen under Ind AS 23?

The choice depends on circumstances. Ind AS 23 says that sometimes it is appropriate to include all borrowings of the parent and its subsidiaries in the weighted average borrowing cost, and in other cases each subsidiary should use a weighted average of its own borrowings. No single fixed rule applies.

  1. AAlways use only the parent's borrowings, since the parent controls the group
  2. BAlways use the subsidiary's own borrowings only, never those of the parent
  3. CUse the simple average of the parent's and subsidiary's rates in all cases
  4. DDepending on circumstances, include all borrowings of the parent and subsidiaries, or use the subsidiary's own weighted averageCorrect

Explanation

Ind AS 23 states that in some circumstances it is appropriate to include all borrowings of the parent and its subsidiaries in the weighted average, and in others each subsidiary should use the weighted average of its own borrowings. Judgement on the circumstances is needed. The options with fixed rules are wrong because the standard does not impose one.

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