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CMA Final · Corporate Financial Reporting · Borrowing Costs (Ind AS 23)

Sarvodaya Infra Ltd borrowed ₹10,00,000 specifically to build a warehouse (a qualifying asset) and incurred interest of ₹1,20,000 on this loan during the year. Pending utilisation, part of the loan was temporarily invested and earned ₹25,000. What amount of borrowing cost is eligible for capitalisation for the year?

The eligible amount is ₹95,000. For funds borrowed specifically for a qualifying asset, the actual interest of ₹1,20,000 is reduced by the ₹25,000 earned on temporary investment of those borrowings, as Ind AS 23 requires, leaving ₹95,000 to capitalise.

  1. A₹1,45,000
  2. B₹1,20,000
  3. C₹95,000Correct
  4. D₹25,000

Explanation

For a specific borrowing, eligible cost is actual borrowing cost incurred during the period less investment income on temporary investment of those borrowings. 1,20,000 − 25,000 = 95,000. Adding the income (₹1,45,000) is a sign error, while ignoring the income (₹1,20,000) misses the deduction.

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