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CA Final · Financial Reporting · Ind AS 23 Borrowing Costs

Sagar Infra Ltd borrowed Rs 10 crore at 9% p.a. specifically to build a cold-storage plant, which is a qualifying asset. For the first quarter of the year, Rs 4 crore of the loan was not yet needed and was kept in a short-term deposit earning Rs 6 lakh. Borrowing costs for the year are otherwise eligible for capitalisation throughout. For that quarter, how much borrowing cost is eligible for capitalisation on this specific borrowing?

Rs 16.50 lakh is eligible. For a specific borrowing, the actual interest for the quarter, Rs 22.5 lakh, is reduced by income earned on temporary investment of unused funds, Rs 6 lakh. Investment income is deducted, not added, so the capitalisable amount is Rs 16.5 lakh.

  1. ARs 16.50 lakhCorrect
  2. BRs 22.50 lakh
  3. CRs 28.50 lakh
  4. DRs 6.00 lakh

Explanation

For a specific borrowing, eligible cost is actual borrowing cost less investment income on temporary investment of the funds. Quarterly interest = 10 crore x 9% x 3/12 = Rs 22.5 lakh. Less Rs 6 lakh income = Rs 16.5 lakh. Rs 22.5 lakh ignores the deduction of investment income; Rs 28.5 lakh wrongly adds it.

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