Page 2 - 9. COMPILER QB - INDAS 23

INDAS 23 –

BORROWING COSTS

(TOTAL NO. OF QUESTIONS – 9)

INDEX

S.No. Particulars Page No.
1 RTP Questions 9.1

2 MTP Questions 9.7
3 Newly Added Questions by ICAI 9.10

RTPs QUESTIONS

Q1 (May 18) - assumption added

An entity constructs a new head office building commencing on 1st September 20X1, which continues till
December 20X1. Directly attributable expenditures at the beginning of the month on this asset are ₹100,000
in September 20X1 and ₹250,000 in each of the months of October to December 20X1.
The entity has not taken any specific borrowings to finance the construction of the asset, but has incurred

finance costs on its general borrowings during the construction period. During the year, the entity had issued
10% debentures with a face value of ₹20 lacs and had an overdraft of ₹500,000, which increased to
₹750,000 in December 20X1. Interest was paid on the overdraft at 15% until 1 October 20X1, then the rate
was increased to 16%.
Calculate the capitalization rate for computation of borrowing cost in accordance with Ind AS 23 ‘Borrowing
Costs’.

Solution Suggested Solution by ICAI
Since the entity has only general borrowing hence the first step will be to compute the capitalisation rate.

The capitalisation rate of the general borrowings of the entity during the period of construction is calculated
as follows:
Finance cost on Rs. 20 lacs 10% debentures during September – December 20X1 66,667
Interest @ 15% on overdraft of Rs. 5,00,000 in September 20X1 6,250
Interest @ 16% on overdraft of Rs. 5,00,000 in October and November 20X1 13,333
Interest @ 16% on overdraft of Rs. 750,000 in December 20X1 10,000
Total finance costs in September – December 20X1 96,250
Weighted average borrowings during period
= (20,00,000x4) + (500,000 x 3) + (750,000 x 1) / 4

= ₹ 25,62,500
Capitalisation rate = Total finance costs during the construction period / Weighted average borrowings during
the construction period = 96,250 / 25,62,500 = 3.756%

9.1