Page 4 - 9. COMPILER QB - INDAS 23

Computation of borrowing cost to be capitalized for specific borrowings and general borrowings
based on weighted average accumulated expenses

Date of incurrence Amount Financed through Calculation Rs
of expenditure spent
st
1 April, 2017 1,50,000 Specific borrowing 1,50,000 x 9% x 10/12 11,250
st
1 August, 2017 2,00,000 Specific borrowing 50,000 x 9% x 10/12 3,750
General borrowing 1,50,000 x 11.4375% x 6/12 8,578.125
st
1 October, 2017 3,50,000 General borrowing 3,50,000 x 11.4375% x 4/12 13,343.75
st
1 January, 2018 1,00,000 General borrowing 1,00,000 x 11.4375% x 1/12 953.125
37,875
Note: Since construction of building started on 1st April, 2017, it is presumed that all the later expenditures on
construction of building had been incurred at the beginning of the respective month.
Total expenses to be capitalized for building

Rs
Cost of building Rs (1,50,000 + 2,00,000 + 3,50,000 + 1,00,000) 8,00,000
Add: Amount of interest to be capitalized 37,875
8,37,875

Journal Entry
Date Particulars Rs Rs
31.1.2018 Building account Dr 8,37,875
To Bank account . 8,00,0000

To Interest payable (borrowing cost) 37,875
(Being expenditure incurred on construction of
building and borrowing cost thereon capitalized)

Note: In the above journal entry, it is assumed that interest amount will be paid at the end of the year.
Hence, entry for interest payable has been passed on 31.1.2018.
Alternatively, following journal entry may be passed if interest is paid on the date of capitalization:
Date Particulars Rs Rs
31.1.2018 Building account Dr 8,37,875
To Bank Account . 8,37,875
(Being expenditure incurred on
construction of building and borrowing
cost thereon capitalized)

Assumption - 10 months in the given case is assumed to be a significant period.

Q3 (RTP Nov. 19 & MTP Oct. 20)

On 1st April, 20X1, entity A contracted for the construction of a building for 22,00,000. The land under the
building is regarded as a separate asset and is not part of the qualifying assets. The building was completed
at the end of March, 20X2, and during the period the following payments were made to the contractor:

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