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CA Final · Financial Reporting · Ind AS 23 Borrowing Costs

Kaveri Holdings Ltd has a wholly owned subsidiary, Kaveri Realty Ltd, which is constructing a qualifying asset using funds from general borrowings. Kaveri Realty has its own loans at 10%, while the group has other borrowings at lower rates raised by the parent. The finance head asks how the weighted average borrowing cost should be chosen for capitalisation. Which view is consistent with Ind AS 23?

Either approach can be appropriate depending on the circumstances. Ind AS 23 says that sometimes all borrowings of the parent and its subsidiaries should be included in the weighted average, and at other times each subsidiary should use the weighted average of its own borrowings. It prescribes no single mandatory approach.

  1. AThe weighted average must always be computed on all borrowings of the parent and its subsidiaries
  2. BThe weighted average must always be computed only on the subsidiary's own borrowings
  3. CDepending on the circumstances, either group-wide borrowings or the subsidiary's own borrowings may be appropriate for the weighted averageCorrect
  4. DOnly the parent's borrowing rate may be used for any group entity

Explanation

Ind AS 23 recognises 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 a weighted average of its own borrowings. The choice depends on the facts, so the 'always' options and the parent-only option are wrong.

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