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CA Intermediate · Advanced Accounting · AS 16 Borrowing Costs

Tapti Developers Ltd raised a specific loan of ₹6 crore at 10% p.a. on 1 April, using ₹2 crore for Block A and ₹4 crore for Block B of a housing project. Each block can be used independently. Block A was completed and ready for use on 30 September; Block B continued until 31 March. What interest on the loan is charged to the statement of profit and loss for the year ended 31 March?

₹10 lakh is charged to profit and loss. Block A was independently usable from 30 September, so capitalisation for its ₹2 crore stopped then; interest of ₹10 lakh for October to March is expensed. Block B's interest for the full year continues to be capitalised.

  1. ANil
  2. B₹10 lakhCorrect
  3. C₹20 lakh
  4. D₹50 lakh

Explanation

When a part of a qualifying asset is complete and usable independently, capitalisation for that part stops. Block A interest: 2 crore × 10% = 20 lakh a year; April-September (6 months) 10 lakh is capitalised, and October-March 10 lakh goes to profit and loss. Block B's 40 lakh is fully capitalised. The ₹20 lakh option wrongly treats the whole year of Block A interest as expense.

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