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CA Intermediate · Advanced Accounting · AS 16 Borrowing Costs

Sundaram Textiles Ltd. borrowed Rs 2,00,000 at 12% p.a. on 1 April to buy a machine for its own use. Which of the following items is NOT a borrowing cost under AS 16?

Dividend on equity share capital is not a borrowing cost. AS 16 covers interest, commitment charges, amortised borrowing expenses and certain exchange differences on foreign borrowings. Equity dividend is a distribution of profit to owners and not a cost incurred in connection with borrowing funds.

  1. AInterest on the Rs 2,00,000 loan
  2. BCommitment charges paid to the bank on the undrawn portion of a sanctioned loan
  3. CExchange differences on foreign currency borrowings to the extent regarded as an adjustment to interest cost
  4. DDividend paid on equity share capitalCorrect

Explanation

AS 16 defines borrowing costs as interest and other costs incurred in connection with borrowing of funds, including commitment charges and certain exchange differences. Dividend on equity shares is an appropriation of profit, not a cost of borrowing, so it is excluded.

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