Page 9 - 9. COMPILER QB - INDAS 23

b. 12.5% 10-year note with simple interest payable annually; debt outstanding at 1 April 2019 amounted to
Rs. 10,00,000 and remained unchanged during the year; and
c. 10% 10-year note with simple interest payable annually; debt outstanding at 1 April 2019 amounted to Rs.

15,00,000 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
general borrowings outstanding
(Rs.) (Rs.) (Rs.)
1 April 2019 2,00,000 0 0
30 June 2019 6,00,000 1,00,000* 1,00,000 × 9/12 = 75,000
31 Dec 2019 12,00,000 12,00,000 12,00,000 × 3/12 = 3,00,000
31 March 2020 2,00,000 2,00,000 2,00,000 × 0/12 = 0

Total 22,00,000 3,75,000
*Specific borrowings of Rs. 7,00,000 fully utilized on 1 April & on 30 June to the extent of Rs. 5,00,000 hence
remaining expenditure of Rs. 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 = (10,00,000 x 12.5%) + (15,00,000 x 10%) = 11%
= 10,00,000 + 15,00,000
Borrowing cost to be capitalized: Amount
(Rs.)
On specific loan 65,000
On General borrowing (Rs. 3,75,000 × 11%) 41,250
Total 1,06,250
Less: Interest income on specific borrowings (20,000)
Amount eligible for capitalization 86,250
Therefore, the borrowing costs to be capitalized are Rs. 86,250.

Q8 (March 21 & Nov. 19 Exams – 8 Marks) - Similar to Q.1.
st
st
An entity constructs a new office building commencing on 1 September, 20X1, which continues till 31
December, 20X1 (and is expected to go beyond a year). Directly attributable expenditure at the beginning of
the month on this asset are Rs. 2 lakhs in September 20X1 and Rs. 4 lakhs in each of the months of
October to December 20X1.
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