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CA Final · Financial Reporting · Ind AS 23 Borrowing Costs

Vishwa Power Ltd has a parent and a subsidiary, both with their own borrowings. The group treasury wants to know how to compute the weighted average capitalisation rate on general borrowings used to fund a qualifying asset in the subsidiary. Which statement is consistent with Ind AS 23 text?

Ind AS 23 permits judgement. In some circumstances all borrowings of the parent and its subsidiaries are included when computing the weighted average borrowing cost, while in others each subsidiary uses the weighted average of its own borrowings. It does not mandate one approach in every case.

  1. AOnly the parent's borrowings may ever be used in the weighted average
  2. BOnly the subsidiary's own borrowings may ever be used in the weighted average
  3. CThe weighted average rate must always be a simple average of all group loan rates
  4. DIt may be appropriate to include all borrowings of the parent and its subsidiaries, or in other circumstances for each subsidiary to use the weighted average of its own borrowingsCorrect

Explanation

Para 15 says that in some circumstances it is appropriate to include all borrowings of the parent and its subsidiaries in the weighted average, and in other circumstances each subsidiary should use the weighted average of its own borrowings. The standard does not impose a single fixed approach, so the absolute options are wrong.

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