Skip to content

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

Kaveri Ltd is constructing a qualifying asset using specific borrowings. It also has general borrowings: Rs 20,00,000 at 10% and Rs 30,00,000 at 12% outstanding all year. Expenditure of Rs 5,00,000 on the asset was met from general funds, outstanding for the full year. What borrowing cost is capitalised on this expenditure?

Rs 56,000 is capitalised. The weighted average rate on general borrowings is total interest of Rs 5,60,000 divided by Rs 50,00,000, which is 11.2%, applied to the Rs 5,00,000 expenditure financed from general funds for the full year.

  1. ARs 56,000Correct
  2. BRs 50,000
  3. CRs 60,000
  4. DRs 1,12,000

Explanation

The weighted average rate = (2,00,000 + 3,60,000) / 50,00,000 = 5,60,000 / 50,00,000 = 11.2%. Capitalisation = 5,00,000 x 11.2% = Rs 56,000. Using the simple average 11% gives Rs 55,000-type errors, and the lowest rate 10% gives Rs 50,000.

Did you get it right without looking?

One question tells you little. A timed set on Borrowing Costs (Ind AS 23) shows your real accuracy, how long you take and where you lose marks.

Practise Borrowing Costs (Ind AS 23)Free diagnostic mock

More Borrowing Costs (Ind AS 23) questions