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CA Final · Financial Reporting · Ind AS 23 Borrowing Costs

Konark Realty Ltd borrowed Rs 10,00,000 specifically to construct a warehouse, which is a qualifying asset. During the year it incurred interest of Rs 1,20,000 on this loan and earned Rs 20,000 by temporarily investing unused portions of the loan. Under Ind AS 23, what amount of borrowing cost is eligible for capitalisation for the year, assuming capitalisation was active throughout?

The eligible amount is Rs 1,00,000. For a specific borrowing, Ind AS 23 allows capitalisation of the actual interest incurred less income earned on temporary investment of the borrowed funds. Interest of Rs 1,20,000 less investment income of Rs 20,000 gives Rs 1,00,000.

  1. ARs 1,40,000
  2. BRs 1,00,000Correct
  3. CRs 1,20,000
  4. DRs 20,000

Explanation

For funds borrowed specifically for a qualifying asset, the eligible amount is actual borrowing costs incurred less investment income on temporary investment of those borrowings (para 12). Working: 1,20,000 - 20,000 = 1,00,000. Rs 1,20,000 ignores the investment income, and Rs 1,40,000 wrongly adds it.

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