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

Group entity Himalaya Holdings Ltd has a subsidiary, Gomti Power Ltd, constructing a qualifying asset funded from general borrowings. Under Ind AS 23, which statement is correct when determining the weighted average capitalisation rate on those general borrowings?

Ind AS 23 says 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. No single approach applies always.

  1. AOnly the parent's borrowings may ever be used
  2. BThe weighted average must always be of the borrowings of the whole group
  3. CThe subsidiary must always use only its own borrowings
  4. DDepending on circumstances, it may be appropriate to include all borrowings of the parent and subsidiaries, or for the subsidiary to use a weighted average of its own borrowingsCorrect

Explanation

The standard recognises that in some circumstances all borrowings of the parent and its subsidiaries are included in the weighted average, and in others each subsidiary uses the weighted average of its own borrowings. Options fixing one approach always are therefore wrong.

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