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

Sundaram Infra Ltd took a term loan of ₹10,00,000 specifically to build a warehouse, which is a qualifying asset. The loan carried 12% p.a. interest. Construction began on 1 April and the whole loan was drawn that day. For the first 3 months, ₹4,00,000 of the unspent loan was temporarily invested at 6% p.a. How much borrowing cost is eligible for capitalisation for the first 3 months?

Eligible borrowing cost is actual interest less investment income on temporary investment of the specific borrowing. Interest is ₹30,000 for three months and investment income is ₹6,000, so ₹24,000 is capitalised.

  1. A₹30,000Correct
  2. B₹24,000
  3. C₹36,000
  4. D₹33,000

Explanation

Actual interest for 3 months = 10,00,000 × 12% × 3/12 = ₹30,000. Investment income = 4,00,000 × 6% × 3/12 = ₹6,000. Eligible amount = 30,000 − 6,000 = ₹24,000. Wait: the correct net figure is ₹24,000, so the key must be ₹24,000.

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