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CMA Intermediate · Financial Accounting · Borrowing Costs (AS 16)

Under AS 16 Borrowing Costs, which of the following is defined as borrowing costs?

Borrowing costs are interest and other costs an enterprise incurs in connection with borrowing funds. The definition is wider than interest alone, but it does not cover the actual or imputed cost of owners' equity, such as equity dividends.

  1. AInterest and other costs incurred by an enterprise in connection with the borrowing of fundsCorrect
  2. BOnly interest paid on term loans from banks
  3. CThe imputed cost of owners' equity funds
  4. DDividend on equity share capital

Explanation

AS 16 defines borrowing costs as interest and other costs incurred by an enterprise in connection with the borrowing of funds. It is not limited to interest on bank loans. The standard does not deal with the actual or imputed cost of owners' equity, so equity dividend is excluded.

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