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CA Intermediate · Advanced Accounting · AS 16 Borrowing Costs

Narmada Infra Ltd. is building a bridge (qualifying asset) in the year ended 31 March 2026. It has a specific loan of Rs 50,00,000 at 11% p.a. drawn on 1 April 2025. Total expenditure on the bridge was Rs 90,00,000 incurred on 1 April 2025, the balance Rs 40,00,000 being met from general borrowings. General borrowings during the year: 10% term loan Rs 1,00,00,000 and 12% debentures Rs 1,00,00,000, both outstanding all year. Work continued throughout. What total borrowing cost is capitalised?

Rs 9,90,000 is capitalised. Specific loan interest is Rs 5,50,000 at 11% on Rs 50,00,000. The general borrowing rate is the weighted average of 10% and 12% on equal amounts, 11%, applied to the Rs 40,00,000 excess expenditure, giving Rs 4,40,000. The total is Rs 9,90,000.

  1. ARs 9,90,000Correct
  2. BRs 9,50,000
  3. CRs 10,40,000
  4. DRs 9,60,000

Explanation

Specific loan: 50,00,000 x 11% = Rs 5,50,000. General borrowings rate = (10,00,000 + 12,00,000)/2,00,00,000 = 11%. Expenditure funded from general borrowings Rs 40,00,000 x 11% = Rs 4,40,000. Total = 5,50,000 + 4,40,000 = Rs 9,90,000. Applying 11% to the full Rs 90,00,000 gives the same figure only by coincidence of rates, so check: 90,00,000 x 11% = Rs 9,90,000 also.

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