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CA Intermediate · Advanced Accounting · AS 16 Borrowing Costs

Kaveri Infra Ltd. is building a bridge, a qualifying asset. Expenditure was ₹60,00,000 on 1 April 2025 and ₹40,00,000 on 1 October 2025, funded from general borrowings. The company's weighted average cost of general borrowings for the year was 10% p.a. Total interest actually incurred on all general borrowings was ₹15,00,000. What amount of borrowing cost can be capitalised for the year ended 31 March 2026?

₹8,00,000 is capitalised. Weighted average expenditure is ₹80,00,000 (₹60 lakh for 12 months plus ₹40 lakh for 6 months), multiplied by the 10% capitalisation rate on general borrowings. This is within the interest actually incurred of ₹15,00,000.

  1. A₹8,00,000Correct
  2. B₹10,00,000
  3. C₹15,00,000
  4. D₹5,00,000

Explanation

Weighted expenditure = 60,00,000 × 12/12 + 40,00,000 × 6/12 = 60,00,000 + 20,00,000 = ₹80,00,000. Capitalisation = 80,00,000 × 10% = ₹8,00,000, which is below the actual interest of ₹15,00,000. Using the full 1 crore gives ₹10,00,000, which is wrong because the second outlay was for only half a year.

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