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

Narmada Ltd borrowed Rs 20,00,000 specifically at 10% p.a. on 1 April to build a plant. Construction started immediately and the loan was fully utilised by 1 July (Rs 5,00,000 spent on 1 April, balance Rs 15,00,000 on 1 July). Unspent funds were invested at 6% p.a. until spent. For the year ended 31 March, with active development throughout, what is the borrowing cost capitalised?

The capitalised borrowing cost is Rs 1,77,500. Full-year interest on the specific loan is Rs 2,00,000, less Rs 22,500 earned by temporarily investing Rs 15,00,000 for three months at 6%, as Ind AS 23 requires for specific borrowings.

  1. ARs 2,00,000
  2. BRs 1,77,500Correct
  3. CRs 1,87,500
  4. DRs 1,90,000

Explanation

Interest for the year = 20,00,000 x 10% = 2,00,000. Investment income = 15,00,000 x 6% x 3/12 = 22,500 (funds unspent April to June). Eligible = 2,00,000 - 22,500 = 1,77,500. Rs 1,87,500 wrongly assumes the loan was invested for only part of the 3 months; Rs 2,00,000 ignores investment income.

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