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CA Final · Financial Reporting · Ind AS 23 Borrowing Costs

Lotus Power Ltd has a Rs 5 crore specific loan at 9% for a plant, fully drawn on 1 April, plus general borrowings. Active development was suspended from 1 July to 30 September because of a prolonged regulatory dispute, which is not a necessary part of getting the asset ready. The year ends 31 March. How should the interest for the suspension period on the specific loan be treated?

Interest for the suspension period is expensed in profit or loss. Capitalisation is suspended during extended periods when active development is interrupted, and a regulatory dispute is not a necessary part of preparing the asset, even though the loan is specific.

  1. ACapitalised, because the loan is specific to the asset
  2. BCapitalised only to the extent of investment income earned
  3. CExpensed in profit or loss, because capitalisation ceases during extended periods of suspended active developmentCorrect
  4. DDeferred and charged over the asset's useful life

Explanation

Ind AS 23 requires capitalisation to be suspended during extended periods in which active development is interrupted, and interest in that period is recognised as an expense. A temporary delay that is a necessary part of the process would not be suspended, but a regulatory dispute is not such a delay.

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