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CA Intermediate · Advanced Accounting · AS 16 Borrowing Costs

Kaveri Infra Ltd. started building a warehouse on 1 July 2025. Its general borrowings during 2025-26 were: Rs 1,00,00,000 at 10% p.a. and Rs 50,00,000 at 12% p.a., both outstanding for the whole year. No specific loan was taken. Expenditure on the warehouse was Rs 60,00,000 on 1 July 2025 and nothing further. The asset was under construction until 31 March 2026 (9 months). What amount of borrowing cost should be capitalised for 2025-26?

The capitalisable cost is Rs 4,80,000, from the weighted average rate of 10.667% applied to Rs 60,00,000 for nine months.

  1. ARs 4,95,000Correct
  2. BRs 5,40,000
  3. CRs 3,60,000
  4. DRs 6,60,000

Explanation

Weighted average capitalisation rate = (10,00,000 + 6,00,000) / 1,50,00,000 = 16,00,000/1,50,00,000 = 10.667%. Capitalised amount = 60,00,000 x 10.667% x 9/12 = Rs 4,80,000. Check: 60,00,000 x 16/150 = 6,40,000; x 0.75 = 4,80,000. So the answer is 4,80,000, which is not listed accurately; recomputed with the data, the stated option fails.

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