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CMA Final · Corporate Financial Reporting · Borrowing Costs (Ind AS 23)

Kaveri Ltd constructs a plant financed by specific loans. Its parent group has several subsidiaries with different borrowing rates. Regarding the weighted average borrowing cost used for general borrowings of a group, which statement follows from Ind AS 23?

Ind AS 23 allows judgement: sometimes all borrowings of the parent and its subsidiaries are included in the weighted average borrowing cost, and sometimes each subsidiary uses a weighted average of its own borrowings, depending on the circumstances of the group.

  1. AOnly the parent's borrowings may ever be used
  2. BOnly each subsidiary's own borrowings may ever be used
  3. CIn some circumstances all borrowings of the parent and its subsidiaries are included, in others each subsidiary uses a weighted average of its own borrowingsCorrect
  4. DThe simple average of all group interest rates must always be used

Explanation

Ind AS 23 states that in some circumstances it is appropriate to include all borrowings of the parent and its subsidiaries in the weighted average, while in others each subsidiary should use the weighted average of its own borrowings. The choice depends on circumstances, so absolute options are wrong.

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