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CA Intermediate · Advanced Accounting · AS 16 Borrowing Costs

Rohini Motors Ltd. incurred Rs 3,00,000 as loan processing fees and Rs 1,50,000 as exchange difference on a foreign currency loan, regarded as an adjustment to interest cost, while financing a qualifying asset. Interest on the loan was Rs 12,00,000. What is the total amount that is a borrowing cost under AS 16?

The total borrowing cost is Rs 16,50,000. AS 16 includes interest, ancillary costs of arranging the borrowing such as processing fees, and exchange differences treated as an adjustment to interest cost, so all three amounts are added together.

  1. ARs 12,00,000
  2. BRs 15,00,000
  3. CRs 16,50,000Correct
  4. DRs 13,50,000

Explanation

AS 16 borrowing costs include interest, ancillary costs incurred in connection with arranging borrowings, and exchange differences on foreign currency borrowings to the extent regarded as an adjustment to interest costs. Total = 12,00,000 + 3,00,000 + 1,50,000 = Rs 16,50,000. Omitting the exchange difference gives Rs 15,00,000.

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