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CA Final · Financial Reporting · Ind AS 23 Borrowing Costs

Himalaya Power Ltd took a specific loan of ₹6 crore at 9% p.a. on 1 April 2025 to build a plant. Construction spending was ₹5 crore on 1 April 2025 and ₹4 crore on 1 October 2025. The unspent ₹1 crore of the loan was invested from 1 April to 30 September 2025 at 5% p.a. The company has general borrowings with a weighted average cost of 10% p.a. The asset was under construction for the whole year to 31 March 2026. Which total borrowing cost is capitalised for the year?

The capitalised amount is ₹66.5 lakh. The specific loan gives ₹54 lakh interest less ₹2.5 lakh investment income, which is ₹51.5 lakh. Spending beyond the specific funds is ₹3 crore from general borrowings at 10% for six months, which is ₹15 lakh. The sum is ₹66.5 lakh.

  1. A₹66.5 lakhCorrect
  2. B₹69.0 lakh
  3. C₹71.5 lakh
  4. D₹51.5 lakh

Explanation

Specific loan cost = 6 crore × 9% = ₹54 lakh, less investment income 1 crore × 5% × 6/12 = ₹2.5 lakh, giving ₹51.5 lakh. On 1 October the ₹4 crore spending is met ₹1 crore from the idle specific funds and ₹3 crore from general borrowings: 3 crore × 10% × 6/12 = ₹15 lakh. Total = 51.5 + 15 = ₹66.5 lakh. ₹71.5 lakh wrongly applies the general rate to the full ₹4 crore.

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