Page 10 - 9. COMPILER QB - INDAS 23

The entity has not taken any specific borrowings to finance the construction of the building but has incurred
finance costs on its general borrowings during the construction period. During the year, the entity had issued
9% debentures with a face value of Rs. 30 lakhs and had an overdraft of Rs. 4 lakhs, which increased to Rs.

st
8 lakhs in December 20X1. Interest was paid on the overdraft at 12% until 1 October, 20X1 and then the
rate was increased to 15%.
st
Calculate the capitalization rate for computation of borrowing cost for the period ending 31 December 20X1,
in accordance with Ind AS 23 'Borrowing Cost'.
Solution

Calculation of capitalization rate on borrowings other than specific borrowings
Nature of general Period of Amount of Rate of Weighted average
borrowings outstanding loan interest amount of interest
Balance (Rs.) p.a. (Rs.)
A B c d = [(b x c) x (a/12)]

9% Debentures 12 months 30,00,000 9% 2,70,000
Bank overdraft 9 months 4,00,000 12% 36,000
2 months 4,00,000 15% 10,000
1 month 8,00,000 15% 10,000
46,00,000 3,26,000

Weighted average cost of borrowings
= {30,00,000 x (12/12)} + {4,00,000 x (11/12)} + {8,00,000 x (1/12)}
= 34,33,334

Capitalisation rate = Weighted average amount of interest x 100
Weighted average of general borrowings

= (3,26,000 / 34,33,334) x 100 = 9.50% p.a.

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