Skip to content

CA Intermediate · Advanced Accounting · AS 16 Borrowing Costs

Narmada Infra Ltd has two general borrowings outstanding throughout 2026-27: 10% debentures of ₹2,00,00,000 and a 12% term loan of ₹3,00,00,000. It spent ₹40,00,000 on a qualifying asset on 1 April 2026 and a further ₹30,00,000 on 1 October 2026, all from general borrowings. Construction continued up to 31 March 2027. What borrowing cost is capitalised for the year?

The capitalised amount is ₹6,16,000. The weighted average rate on general borrowings is 11.2%. Applying it to ₹40,00,000 for twelve months gives ₹4,48,000, and to ₹30,00,000 for six months gives ₹1,68,000. The two amounts add up to ₹6,16,000.

  1. A₹6,16,000Correct
  2. B₹6,05,000
  3. C₹7,84,000
  4. D₹4,48,000

Explanation

The weighted average rate is (20,00,000 + 36,00,000) / 5,00,00,000 = 11.2%. The first expenditure carries a full year: 40,00,000 × 11.2% = ₹4,48,000. The second carries six months: 30,00,000 × 11.2% × 6/12 = ₹1,68,000. Total = ₹6,16,000. Ignoring the six-month timing gives ₹7,84,000, and using a simple average rate of 11% gives ₹6,05,000.

Did you get it right without looking?

One question tells you little. A timed set on AS 16 Borrowing Costs shows your real accuracy, how long you take and where you lose marks.

Practise AS 16 Borrowing CostsFree diagnostic mock

More AS 16 Borrowing Costs questions