Page 5 - 9. COMPILER QB - INDAS 23

Payment Date Amount (Rs. in 000)
st
1 April 20X1 200
th
30 June 20X1 600
st
31 December 20X1 1200
st
31 March 20X2 200
Total 2200

Entity A’s borrowings at its year end of 31st March, 20X2 were as follows:
1. 10%, 4-year note with simple interest payable annually, which relates specifically to the project; debt
outstanding on 31st March, 20X2 amounted to Rs. 7,00,000. Interest of Rs. 65,000 was incurred on these
borrowings during the year, and interest income of Rs. 20,000 was earned on these funds while they were
held in anticipation of payments.
2. 12.5% 10-year note with simple interest payable annually; debt outstanding at 1st April, 20X1 amounted to

Rs.1,000,000& remained unchanged during the year; &
3. 10% 10-year note with simple interest payable annually; debt outstanding at 1st April, 20X1 amounted to
Rs.1,500,000 and remained unchanged during the year.
What amount of the borrowing costs can be capitalized at year end as per relevant Ind AS?

Solution
As per Ind AS 23, when an entity borrows funds specifically for the purpose of obtaining a qualifying asset,
the entity should determine the amount of borrowing costs eligible for capitalisation as-

the actual borrowing costs incurred on that borrowing during the period (less) any investment income on the
temporary investment of those borrowings.
The amount of borrowing costs eligible for capitalization, in cases where the funds are borrowed generally,
should be determined based on the expenditure incurred in obtaining a qualifying asset. The costs incurred
should first be allocated to the specific borrowings.

Analysis of expenditure:
Date Expenditure Amount allocated in Weighted for period
Gen. Borrowings outstanding
st
1 April 200 0 0
30 June 600 100* 100x9/12 = 75
th
st
31 Dec 1200 1200 1200x3/12 = 300
st
31 March 200 200 200x0/12 = 0
Total 2200 375
*Specific borrowings of 7,00,000 fully utilized on 1st April & on 30th June to the extent of 5,00,000 hence
remaining expenditure of 1,00,000 allocated to general borrowings.

The expenditure rate relating to general borrowings should be the weighted average of the borrowing costs
applicable to the entity’s borrowings that are outstanding during the period, other than borrowings made
specifically for the purpose of obtaining a qualifying asset.

Capitalisation Rate = [(10,00,000x12.5%) + (15,00,000x10%)] / [10,00,000+15,00,000] = 11%

Borrowing Cost to be Capitalised Amount
On Specific Loan of 7,00,000 65,000
On general borrowing (375000x11%) 41,250
Total 1,06,250
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