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CA Final · Financial Reporting · Ind AS 23 Borrowing Costs

Meru Steels Ltd, a parent, has a subsidiary Meru Foundry Ltd that is building a qualifying asset using general borrowings of its own at 11%. The parent has other borrowings at 9%. Which statement is consistent with Ind AS 23 when computing the weighted average capitalisation rate?

Judgement is needed. In some circumstances the weighted average includes all borrowings of the parent and its subsidiaries, and in others the subsidiary uses a weighted average of its own borrowings. The standard does not mandate one fixed approach for every group.

  1. AThe parent's rate must always be used for the subsidiary
  2. BOnly the subsidiary's own rate may ever be used
  3. CDepending on the circumstances, either all borrowings of the parent and subsidiaries are included, or the subsidiary uses a weighted average of its own borrowingsCorrect
  4. DThe simple average of 9% and 11% must be used in all cases

Explanation

Para 15 says that in some circumstances it is appropriate to include all borrowings of the parent and its subsidiaries, while in others each subsidiary should use a weighted average of its own borrowings. Fixed rules in the other options are not in the standard.

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