Page 3 - 9. COMPILER QB - INDAS 23

Suggested Solution as per Author’s View:
Finance cost on Rs. 20 lacs 10% debentures for whole year 200000
Interest @ 15% on overdraft of Rs. 5,00,000 in April to September 20X1 56,250
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 for Whole Year 2,79,583

Weighted average borrowings during period

= (20,00,000x12/12) + (500,000 x 11/12) + (750,000 x 1/12)
= ₹ 25,20,833
Capitalisation rate = Total finance costs / Weighted average borrowings = 2,79,583 / 25,20,833 = 11.09%
p.a.; and for 4 Months = 11.09x4/12 = 3.70%

Assumption - Debentures and overdraft were existing from the beginning of the year. Question asks to

compute the total borrowing cost capitalization rate. Total borrowing cost using this rate will then be divided
between capitalized and expense.

Q2 (Nov. 18)
st
K Ltd. began construction of a new building at an estimated cost of Rs 7 lakhs on 1 April, 2017. To finance
construction of the building it obtained a specific loan of Rs 2 lakhs from a financial institution at an interest
rate of 9% per annum.
The company’s other outstanding loans were:

Amount Rate of Interest per annum
Rs 7,00,000 12%
Rs 9,00,000 11%
The expenditure incurred on the construction was:
April, 2017 Rs 1,50,000
August, 2017 Rs 2,00,000
October, 2017 Rs 3,50,000
January, 2018 Rs 1,00,000
The construction of the building was completed by 31st January, 2018. Following the provisions of Ind AS 23
‘Borrowing Costs’, calculate the amount of interest to be capitalized and pass necessary journal entries for
capitalizing the cost and borrowing cost in respect of the building as on 31st January, 2018.

Solution

Calculation of capitalization rate on borrowings other than specific borrowings
Amount of loan (Rs) Rate of Amount of interest
interest (Rs)
7,00,000 12% = 84,000
9,00,000 11% = 99,000
16,00,000 1,83,000
Weighted average rate of interest = 11.4375%
(1,83,000/16,00,000) x100
9. 2