CMA Final · Corporate Financial Reporting · Borrowing Costs (Ind AS 23)
Kaveri Textiles Ltd borrowed ₹20,00,000 at 10% p.a. specifically for a qualifying plant. During the year the interest paid was ₹2,00,000. Of the borrowing, ₹5,00,000 was temporarily invested for 6 months at 4% p.a. before being spent. What amount of borrowing cost should be capitalised for the year, assuming the asset was under construction throughout the year?
For a specific borrowing, capitalise actual interest less income earned on temporary investment of the funds. Interest is ₹2,00,000 and investment income is ₹10,000, so the capitalised borrowing cost is ₹1,90,000.
- A₹2,00,000
- B₹1,90,000Correct
- C₹1,80,000
- D₹2,10,000
Explanation
Actual borrowing cost = ₹2,00,000. Investment income = 5,00,000 × 4% × 6/12 = ₹10,000. Capitalised amount = 2,00,000 − 10,000 = ₹1,90,000. Option ₹2,00,000 ignores the deduction of investment income; ₹2,10,000 adds it instead of deducting it.
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