Skip to content

CA Final · Financial Reporting · Ind AS 23 Borrowing Costs

Kaveri Textiles Ltd is constructing a factory (qualifying asset) funded partly by a specific loan and partly by general borrowings. Expenditure on the asset in the year was Rs 6 crore, of which Rs 4 crore was met from the specific loan and the remaining Rs 2 crore (incurred evenly, so the average outstanding for the year is Rs 2 crore) from general funds. The weighted average capitalisation rate on general borrowings is 10%. Specific loan interest for the year is Rs 32 lakh with no investment income. What total borrowing cost is capitalised, assuming general borrowings exceed Rs 2 crore and active development all year?

Rs 52 lakh is capitalised. The specific loan interest of Rs 32 lakh is capitalised in full, and the general-borrowing portion is the Rs 2 crore average expenditure funded generally multiplied by the 10% capitalisation rate, which gives Rs 20 lakh. Adding them gives Rs 52 lakh.

  1. ARs 52 lakhCorrect
  2. BRs 60 lakh
  3. CRs 32 lakh
  4. DRs 20 lakh

Explanation

Specific loan: Rs 32 lakh capitalised in full. General borrowings: expenditure on the asset in excess of the specific loan, weighted, Rs 2 crore x 10% = Rs 20 lakh. Total = Rs 52 lakh. Rs 60 lakh wrongly applies 10% to the full Rs 6 crore; Rs 32 lakh ignores general borrowings.

Did you get it right without looking?

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

Practise Ind AS 23 Borrowing CostsFree diagnostic mock

More Ind AS 23 Borrowing Costs questions