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

Meenakshi Ltd, a parent, has a subsidiary building a qualifying asset funded from the group's general pool. The parent has borrowings of Rs 40,00,000 at 9%, and the subsidiary has its own borrowings of Rs 10,00,000 at 14%. Which statement is consistent with Ind AS 23 on determining the capitalisation rate?

Ind AS 23 permits either approach depending on circumstances: including all borrowings of the parent and its subsidiaries in one weighted average, or letting each subsidiary use the weighted average of its own borrowings. It does not fix one mandatory rate.

  1. ADepending on circumstances, the weighted average may include all borrowings of the parent and subsidiaries, or each subsidiary may use the weighted average of its own borrowingsCorrect
  2. BThe parent's rate of 9% must always be used for the subsidiary
  3. COnly the subsidiary's own 14% rate may ever be used
  4. DBorrowing costs of a subsidiary cannot be capitalised in consolidated statements

Explanation

The standard says 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 uses a weighted average of its own borrowings. The other options impose a single rigid rule not found in the text.

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