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

Kaveri Textiles Ltd has a subsidiary that builds a qualifying asset. The group funds the subsidiary centrally, and the parent's and the subsidiary's own loans carry different rates. Under Ind AS 23, how should the weighted average rate for general borrowings be chosen in the consolidated context?

It depends on the circumstances. Ind AS 23 says that sometimes all borrowings of the parent and its subsidiaries are included in computing the weighted average cost, while in other cases each subsidiary uses the weighted average of its own borrowings. No single fixed rule applies.

  1. AAlways use only the parent's borrowings, since the parent controls the group
  2. BAlways use only the subsidiary's own borrowings, never the parent's
  3. CUse the simple average of the highest and lowest rate in the group
  4. DDepending on circumstances, either include all borrowings of the parent and its subsidiaries, or let each subsidiary use the weighted average of its own borrowingsCorrect

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, and in others each subsidiary should use the weighted average of its own borrowings. It fixes no single rule, so the always-parent and always-subsidiary options are wrong, and the standard prescribes no high-low simple average.

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