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CA Final · Financial Reporting · Ind AS 23 Borrowing Costs

Kaveri Builders Ltd borrowed Rs 10 crore at 9% p.a. specifically to construct a warehouse, which is a qualifying asset. Construction continued throughout the year, and the entire loan was outstanding for the full year. Pending utilisation, part of the loan was temporarily invested in short-term deposits that earned Rs 12 lakh during the year. What amount of borrowing cost is eligible for capitalisation for the year?

The eligible amount is Rs 78 lakh. Actual interest on the specific loan is Rs 90 lakh, and Ind AS 23 requires deducting the Rs 12 lakh earned by temporarily investing the unused borrowed funds. Capitalising the full Rs 90 lakh would overstate the asset cost.

  1. ARs 90 lakh
  2. BRs 78 lakhCorrect
  3. CRs 102 lakh
  4. DRs 12 lakh

Explanation

Actual interest on the specific borrowing is Rs 10 crore x 9% = Rs 90 lakh. Ind AS 23 requires deducting investment income on the temporary investment of those borrowings, so Rs 90 lakh - Rs 12 lakh = Rs 78 lakh. Rs 90 lakh ignores the investment income, and Rs 102 lakh adds it instead of deducting it.

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