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CA Final · Financial Reporting · Ind AS 23 Borrowing Costs

Kaveri Infra Ltd took a term loan of ₹10 crore at 9% p.a. on 1 April 2025 specifically to construct a plant (a qualifying asset); construction continued throughout the year. Of the loan, ₹4 crore was not needed immediately and was temporarily invested for 3 months at 6% p.a. Which amount of borrowing cost is eligible for capitalisation for the year ended 31 March 2026?

The eligible amount is ₹84 lakh. Interest actually incurred on the specific borrowing is ₹90 lakh, and Ind AS 23 requires deducting investment income on temporary investment of those funds, which is ₹6 lakh. Ninety minus six gives the capitalisable cost of ₹84 lakh.

  1. A₹84 lakhCorrect
  2. B₹90 lakh
  3. C₹96 lakh
  4. D₹66 lakh

Explanation

Actual interest = 10 crore × 9% = ₹90 lakh. Investment income = 4 crore × 6% × 3/12 = ₹6 lakh. Eligible amount = 90 − 6 = ₹84 lakh. ₹90 lakh ignores the deduction of investment income; ₹96 lakh adds it instead of deducting.

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