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

Sundaram Infra Ltd took a specific term loan of ₹10,00,000 at 12% p.a. to construct a qualifying warehouse. Construction was in progress for the whole year. During the year, ₹4,00,000 of the loan was not needed immediately and was kept in a short-term deposit for 3 months, earning 6% p.a. What borrowing cost is eligible for capitalisation for the year?

The eligible borrowing cost is ₹1,14,000. Actual interest on the specific loan is ₹1,20,000, and the income earned on temporarily investing surplus funds, ₹6,000, must be deducted. Ind AS 23 capitalises actual cost less investment income for specific borrowings.

  1. A₹1,20,000
  2. B₹1,14,000Correct
  3. C₹1,18,500
  4. D₹1,26,000

Explanation

Actual interest = 10,00,000 x 12% = ₹1,20,000. Investment income = 4,00,000 x 6% x 3/12 = ₹6,000. Eligible amount = 1,20,000 - 6,000 = ₹1,14,000. Ignoring the income gives ₹1,20,000, which is wrong because specific borrowings are reduced by temporary investment income.

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