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

Which item falls outside the scope of AS 16 Borrowing Costs?

The imputed cost of owners' equity, including preference share capital not classified as a liability, is outside AS 16. The standard deals with costs of borrowing such as interest, not with the cost of owners' funds.

  1. AInterest on a debenture issued to fund construction of a plant
  2. BImputed cost of owners' equity, including preference share capital not classified as a liabilityCorrect
  3. CInterest on a bank term loan taken to buy machinery
  4. DOther costs incurred in connection with borrowing of funds

Explanation

AS 16 states that it does not deal with the actual or imputed cost of owners' equity, including preference share capital not classified as a liability. Interest on debentures and term loans, and other borrowing-related costs, are borrowing costs covered by the standard.

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