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CA Final · Financial Reporting · Ind AS 23 Borrowing Costs

Sagar Pharma Ltd is building a laboratory (a qualifying asset). Work was actively carried on from 1 April to 30 June. From 1 July to 30 September, work was suspended for an extended period because of a dispute with a contractor, unrelated to any technical or administrative stage necessary for the asset. Work resumed on 1 October and continued until 31 March. Monthly eligible borrowing cost is Rs 5 lakh. What amount is capitalised for the year?

Rs 45 lakh is capitalised. Capitalisation is suspended during extended periods when active development is interrupted, and a contractor dispute is not a necessary technical or administrative stage. Only nine active months count, and nine months at Rs 5 lakh per month equals Rs 45 lakh; the suspended three months are expensed.

  1. ARs 60 lakh
  2. BRs 45 lakhCorrect
  3. CRs 30 lakh
  4. DRs 15 lakh

Explanation

Capitalisation is suspended during extended periods in which active development is interrupted, unless the delay is a necessary part of the process. The contractor dispute is not such a necessary stage. Active months = 3 (Apr-Jun) + 6 (Oct-Mar) = 9; 9 x Rs 5 lakh = Rs 45 lakh. Rs 60 lakh ignores the suspension.

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