CMA Intermediate · Financial Accounting · Borrowing Costs (AS 16)
Sagar Infra Ltd borrowed Rs 10,00,00,000 at 9% p.a. specifically to build a plant. Construction was in progress for the whole year. Part of the loan was temporarily invested pending use and earned Rs 6,00,000. What amount of borrowing costs capitalised should the company disclose for the year?
The company should disclose Rs 84,00,000 as borrowing costs capitalised. Interest incurred on the specific loan is Rs 90,00,000, and AS 16 requires income of Rs 6,00,000 earned on temporary investment of those borrowings to be deducted before capitalisation.
- ARs 90,00,000
- BRs 84,00,000Correct
- CRs 96,00,000
- DRs 6,00,000
Explanation
Interest incurred is 10,00,00,000 × 9% = Rs 90,00,000. For a specific borrowing, the amount eligible for capitalisation is actual borrowing cost less income on temporary investment, so 90,00,000 − 6,00,000 = Rs 84,00,000. Rs 96,00,000 wrongly adds the income, and Rs 90,00,000 ignores the deduction.
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