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

Sundaram Infra Ltd took a specific loan of ₹10,00,000 at 9% p.a. on 1 April solely to build a warehouse, a qualifying asset. Construction was active for the whole year. Surplus funds of ₹4,00,000 from the loan were temporarily invested for 6 months at 6% p.a. before being spent. What amount of borrowing cost is eligible for capitalisation for the year?

The eligible amount is ₹78,000: actual interest of ₹90,000 on the specific loan less ₹12,000 earned on temporarily investing unspent loan funds. Ind AS 23 requires investment income on temporary investment of specific borrowings to be deducted from the borrowing costs capitalised.

  1. A₹90,000
  2. B₹78,000Correct
  3. C₹82,000
  4. D₹1,02,000

Explanation

Actual interest = 10,00,000 × 9% = ₹90,000. Investment income = 4,00,000 × 6% × 6/12 = ₹12,000. Eligible amount = 90,000 − 12,000 = ₹78,000, as the standard deducts income on temporary investment of specific borrowings. ₹90,000 ignores that deduction, and ₹1,02,000 adds the income instead.

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