Skip to content

CA Final · Financial Reporting · Ind AS 23 Borrowing Costs

Sagar Textiles Ltd borrowed Rs 10 crore specifically to build a new spinning plant, which is a qualifying asset. During the construction year the loan carried interest of Rs 90 lakh. Until the funds were spent, part of the loan was placed in short-term deposits that earned Rs 12 lakh. What amount of borrowing cost is eligible for capitalisation for the year?

Rs 78 lakh is capitalised. For a borrowing taken specifically to obtain a qualifying asset, the actual interest of Rs 90 lakh is reduced by the Rs 12 lakh earned on temporary investment of the unspent funds, giving Rs 78 lakh eligible for capitalisation.

  1. ARs 78 lakhCorrect
  2. BRs 90 lakh
  3. CRs 102 lakh
  4. DRs 12 lakh

Explanation

For a specific borrowing, eligible cost is actual borrowing cost incurred during the period less investment income on temporary investment of those borrowings (para 12). So 90 - 12 = Rs 78 lakh. Rs 90 lakh ignores the deduction of investment income, and Rs 102 lakh adds it instead of deducting it.

Did you get it right without looking?

One question tells you little. A timed set on Ind AS 23 Borrowing Costs shows your real accuracy, how long you take and where you lose marks.

Practise Ind AS 23 Borrowing CostsFree diagnostic mock

More Ind AS 23 Borrowing Costs questions