Skip to content

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

Under AS 16, which of the following is the correct description of the capitalisation rate to be applied to expenditure on a qualifying asset financed from general borrowings?

The capitalisation rate is the weighted average of borrowing costs on the enterprise's borrowings outstanding during the period, excluding borrowings made specifically to obtain a qualifying asset, because those are capitalised at actual cost less temporary investment income.

  1. AThe weighted average of borrowing costs on all borrowings outstanding during the period, including those made specifically for the qualifying asset
  2. BThe weighted average of borrowing costs on borrowings outstanding during the period, other than those made specifically to obtain a qualifying assetCorrect
  3. CThe highest rate of interest paid on any single borrowing during the period
  4. DThe simple average of the interest rates on the closing balances of borrowings

Explanation

AS 16 says the capitalisation rate is the weighted average of the borrowing costs applicable to borrowings outstanding during the period, other than borrowings made specifically for obtaining a qualifying asset. Including specific borrowings would double count them, since their costs are determined separately on an actual basis.

Did you get it right without looking?

One question tells you little. A timed set on Borrowing Costs (AS 16) shows your real accuracy, how long you take and where you lose marks.

Practise Borrowing Costs (AS 16)Free diagnostic mock

More Borrowing Costs (AS 16) questions