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

Sundaram Infra Ltd took a specific term loan of Rs 10,00,000 at 12% p.a. for the whole year to build a plant (a qualifying asset). Rs 4,00,000 of the loan stayed unused and was temporarily invested for 6 months, earning Rs 12,000. What amount of borrowing cost is eligible for capitalisation for the year?

The capitalisable amount is Rs 1,08,000. Actual interest on the specific loan is Rs 1,20,000, and the Rs 12,000 earned on temporary investment of the unused funds is deducted, because Ind AS 23 requires actual borrowing cost less investment income for specific borrowings.

  1. ARs 1,08,000Correct
  2. BRs 1,20,000
  3. CRs 72,000
  4. DRs 1,32,000

Explanation

Actual interest = 10,00,000 x 12% = Rs 1,20,000. Under the standard, eligible cost is actual borrowing cost less investment income on temporary investment: 1,20,000 - 12,000 = Rs 1,08,000. Rs 1,20,000 ignores the income deduction; Rs 1,32,000 adds the income by sign error.

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