CMA Intermediate · Financial Accounting · Borrowing Costs (AS 16)
Himalaya Ltd has two borrowings: a specific loan of Rs 30,00,000 at 12% for a qualifying asset, and general loans of Rs 20,00,000 at 10% and Rs 30,00,000 at 8% outstanding all year. Which is the correct capitalisation rate for general borrowings and what is the specific-loan interest before any investment income?
The general capitalisation rate excludes the specific loan and is 8.8 percent, while specific interest is Rs 3,60,000.
- ARate 9.2%; specific interest Rs 3,60,000Correct
- BRate 10%; specific interest Rs 3,00,000
- CRate 9.2%; specific interest Rs 2,76,000
- DRate 10.4%; specific interest Rs 3,60,000
Explanation
The capitalisation rate excludes borrowings made specifically for the asset. General: 2,00,000 + 2,40,000 = 4,40,000 on Rs 50,00,000 = 8.8%. Specific interest is 12% x 30,00,000 = Rs 3,60,000. Rate 8.8% is not listed, so no option is fully correct.
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