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CA Final · Financial Reporting · Ind AS 23 Borrowing Costs

Sundaram Infra Ltd borrowed ₹10 crore at 9% p.a. specifically to construct a manufacturing plant, which is a qualifying asset. Construction continued throughout the year. Because some funds were not needed immediately, ₹2 crore was kept in a short-term deposit for a few months and earned ₹6 lakh. What amount of borrowing cost is eligible for capitalisation for the year?

₹84 lakh is capitalised. For funds borrowed specifically for a qualifying asset, the eligible amount is actual interest incurred (₹90 lakh) minus income earned from temporarily investing unused borrowed funds (₹6 lakh). The investment income reduces the capitalisable cost rather than being ignored or added.

  1. A₹84 lakhCorrect
  2. B₹90 lakh
  3. C₹96 lakh
  4. D₹6 lakh

Explanation

For a specific borrowing, eligible cost is the actual borrowing cost incurred less investment income on temporary investment of those borrowings. Interest = 10 crore × 9% = ₹90 lakh. Less ₹6 lakh income gives ₹84 lakh. ₹90 lakh ignores the deduction, and ₹96 lakh wrongly adds the income.

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