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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 9% p.a. to construct a warehouse (a qualifying asset). The full loan was drawn on 1 April and construction was active for the full year. Unspent funds of Rs 4,00,000 were temporarily invested for 6 months at 5% p.a. Compute the borrowing cost eligible for capitalisation for the year.

The eligible amount is Rs 80,000. Actual interest on the specific loan is Rs 90,000, and the Rs 10,000 earned on temporarily invested unspent funds is deducted, as Ind AS 23 requires for specific borrowings.

  1. ARs 90,000
  2. BRs 80,000Correct
  3. CRs 70,000
  4. DRs 1,00,000

Explanation

For specific borrowings, eligible cost is actual borrowing cost less investment income on temporary investment. Interest = 10,00,000 x 9% = 90,000. Investment income = 4,00,000 x 5% x 6/12 = 10,000. Eligible = 90,000 - 10,000 = 80,000. Rs 90,000 ignores the deduction of investment income.

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