270?C4A F8B4 <0A:B 38BCA81DC8>= Ch. Chapter No. Name
May Nov. Nov. Jan. July Dec. May Nov. May Nov. Aver2019 2019 2020 2021 2021 2021 2022 2022 2023 2023 age
1.
Framework for Financial Reporting Under Ind AS
5
2.
Ind AS 1: Presentation of Financial Statements
4
3.
Ind AS 34: Interim Financial Reporting
6
4.
Ind AS 7: Cash Flow Statement
8
5.
Ind AS 8: Accounting Policies, Changes in Accounting Estimates and Errors
6.
Ind AS 10: Events After Reporting Period
8
7.
Ind AS 113: Fair Value Measurements
8
8.
Ind AS 115: Revenue from Contracts with Customers
9.
Ind AS 2: Inventories
10. Ind AS 16: Property, Plant and Equipment
5
5
4
5
5
8
12
12
1.00
6
1.90 5
4
5
5
10
14
20
5 5
I-5
8
3.40
2.30
5
5
4 8
12
5
8
18
6
4
5
5
6
1.50
2.10
2.20
12
12
5 8
12.30
1.40 5
3.40
I-6 Ch. Chapter No. Name
CHAPTER-WISE MARKS DISTRIBUTION May Nov. Nov. Jan. July Dec. May Nov. May Nov. Aver2019 2019 2020 2021 2021 2021 2022 2022 2023 2023 age
11. Ind AS 23: Borrowing Costs
8
12. Ind AS 36: Impairment of Assets 13. Ind AS 38: Intangible Assets
7 8
5
8
6
1.50 8
10
4
14. Ind AS 40: Investment Property
5
10
15. Ind AS 105: Non-Current Assets (NCA) held for Sale & Discontinued Operations (DO) 16. Ind AS 116: Leases
8
18. Ind AS 20: Accounting for Government Grants and Disclosure of Government Assistance
4
4
19. Ind AS 102: Share Based Payment
8
8
20. Ind AS 19: Employee Benefits
5
6
4
4
9
10
8
8 6
8
3.40
8
4.40
8
2.70
8
5
6
6
6
1.60
6
8
7
4
6 5
4
4
5 5
5
0.40
6 6
4.70
1.80
21. Ind AS 37: Provision, Contingent Liability and Contingent Assets 22. Ind AS 12: Income Taxes
2.70 0.50
8
17. Ind AS 41: Agriculture
23. Ind AS 21: The Effects of Changes in Foreign Exchange Rates
2.20
2.10 4
2.90
I-7
CHAPTER-WISE MARKS DISTRIBUTION Ch. Chapter No. Name
May Nov. Nov. Jan. July Dec. May Nov. May Nov. Aver2019 2019 2020 2021 2021 2021 2022 2022 2023 2023 age
24. Ind AS 24: Related Party Disclosures
4
25. Ind AS 33: Earnings Per Share
8
26. Ind AS 108: Operating Segments
6
27. Ind AS 32: Financial Instruments (FI) – Presentation
16
8
28. Ind AS 109: Financial Instruments (FI) – Recognition and Measurement
12
14
18
29. Ind AS 103: Business Combination
8
20
8
30. Ind AS 110: Consolidated Financial Statements
15
10
8
4
19
20
8
4
8
8
5
24
29
19
5
19
20
16
0.40
17
3.60
16
19
8
4.70
14
3.80
5
17.60
15
20
5
9.50
20
10.60
31. Ind AS 111: Joint Arrangements
0.00
32. Ind AS 28: Investment in Associates and Joint Ventures
0.00
33. Ind AS 27: Separate Financial Statements
0.00
34. Ind AS 101: First-Time Adoption of Ind AS
6
8
5
1.90
35. Professional and ethical duty of a Chartered Accountant
0.00
36. Accounting and Technology
0.00
Note : Chapters 35 & 36 are newly added in syllabus.
?A4E8>DB 4G0<B CA4=3 0=0;HB8B Year Dec. 2021
May 2022
Question No.
Compulsory
Chapter Name
Marks Category
1(a)
Yes
Ind AS-109
12
Practical
1(b)
Yes
Ind AS-101
8
Practical
2(a)
Ind AS-103
14
Practical
2(b)
Ind AS-7
6
Practical
3(a)
Ind AS-21
5
Practical
3(b)
Ind AS-12
5
Practical
3(c)
Ind AS-115
10
Practical
4(a)
Ind AS-116
10
Practical
4(b)
Ind AS-102
6
Practical
4(c)
Ind AS-34
4
Practical
or 4(c)
Ind AS-113
4
Practical
5(a)
Ind AS-109
12
Practical
5(b)
Ind AS-33
8
Practical
6(a)
Ind AS-8
5
Practical
6(b)
Ind AS-109
5
Practical
6(c)
Ind AS-2
5
Practical
6(d)
Ind AS-103
5
Practical
1(a)
Yes
Ind AS-103
15
Practical
1(b)
Yes
Ind AS-1
5
Practical
2(a)
CSR
6
Practical
2(b)
Ind AS-115
6
Practical
2(c)
Ind AS-115
8
Practical
3(a)
Ind AS-19
7
Practical
3(b)
Ind AS-23
7
Practical
3(c)
Ind AS-21
6
Practical
4(a)
Ind AS-32
14
Practical
4(b)
Framework
6
Theory
or 4(b)
Integrated Reporting
6
Theory
5(a)
Ind AS-20
8
Practical
I-9
I-10 Year
PREVIOUS EXAMS TREND ANALYSIS
Question No.
Compulsory
Ind AS-105
8
Practical
5(c)
Ind AS-33
4
Practical
6(a)
Ind AS-113
5
Practical
6(b)
Ind AS-109
5
Practical
6(c)
Ind AS-40
5
Practical
Ind AS-36 & Ind AS-103
5
Practical
1(a)
Yes
Ind AS 110
15
Practical
1(b)
Yes
Ind AS 113
5
Practical
2(a)
Ind AS 115
6
Practical
2(b)
Ind AS 115
10
Practical
2(c)
Ind AS 115
4
Practical
3(a)
Ind AS 36
8
Practical
3(b)
Ind AS 12
6
Practical
3(c)
Framework
6
Theory
Integrated Reporting
6
Theory
OR 3(c)
May 2023
Marks Category
5(b)
6(d) Nov. 2022
Chapter Name
4(a)
Ind AS 109
12
Practical
4(b)
Ind AS 116
8
Practical
5(a)
Ind AS 41
6
Practical
5(b)
Ind AS 33
8
Practical
5(c)
Ind AS 102
6
Practical
6(a)
Ind AS 8
5
Practical
6(b)
Ind AS 109
5
Practical
6(c)
Ind AS 108
5
Practical
6(d)
Ind AS 28
5
Practical
Ind AS 103
15
Practical
1(a)
Yes
1(b)
Yes
Ind AS 1
5
Practical
2(a)
Ind AS 105
8
Practical
2(b)
Ind AS 115
6
Practical
2(c)
Ind AS 115
6
Practical
3(a)
Ind AS 41
8
Practical
3(b)
Ind AS 16
8
Practical
3(c)
Ind AS 24
4
Practical
4(a)
Ind AS 109
14
Practical
4(b)
Framework
6
Theory
or 4(b)
Integrated Reporting
6
Theory
I-11
PREVIOUS EXAMS TREND ANALYSIS
Year
Question No.
Compulsory
Marks Category
5(a)
Ind AS 108
16
Practical
5(b)
Ind AS 37
4
Practical
6(a)
Ind AS 10
5
Practical
6(b)
Ind AS 109
5
Practical
6(c)
Ind AS 2
5
Practical
Ind AS 110
5
Practical
#ONSOLIDATED &INANCIAL 3TATEMENTS )ND !3
0RACTICAL
#ORPORATE 3OCIAL 2ESPONSIBILITY #32
4HEORY
6(d) Nov. 2023
Chapter Name
a
Yes
b
)ND !3 n 2EVENUE
0RACTICAL
c
)ND !3 n 2EVENUE
4HEORY
a
)ND !3 n ,EASES
0RACTICAL
b
)ND !3 .#! (ELD FOR 3ALE AND $/
0RACTICAL
c
)ND !3 n &OREIGN %XCHANGE
0RACTICAL
a
&INANCIAL )NSTRUMENT )ND !3
0RACTICAL
b
&RAMEWORK FOR lNANCIAL REPORTING UNDER )ND !3
4HEORY
b /2
&RAMEWORK FOR lNANCIAL REPORTING UNDER )ND !3
4HEORY
a
)ND !3 n 3HARE "ASED 0AYMENT
0RACTICAL
b
)ND !3 n /PERATING 3EGMENT
0RACTICAL
c
)ND !3 n )NTANGIBLE !SSETS
0RACTICAL
a
)ND !3 n &IRST 4IME !DOPTION
4HEORY
b
&INANCIAL )NSTRUMENT )ND !3
0RACTICAL
c
0ROPERTY 0LANT AND EQUIPMENT )ND !3
0RACTICAL
d
!CCOUNTING 0OLICIES CHANGES IN ACCOUNTING ESTIMATES AND ERRORS )ND !3
0RACTICAL
270?C4A F8B4 2><?0A8B>= F8C7 BCD3H <0C4A80; S. No.
Chapter Name
Study Material Chapter
1.
Framework for Financial Reporting Under Ind AS
Chapter 1, Chapter 2
2.
Ind AS 1: Presentation of Financial Statements
Chapter 3, Unit 1
3.
Ind AS 34: Interim Financial Reporting
Chapter 3, Unit 2
4.
Ind AS 7: Cash Flow Statement
Chapter 3, Unit 3
5.
Ind AS 8: Accounting Policies, Changes in Accounting Es- Chapter 4, Unit 1 timates and Errors
6.
Ind AS 10: Events after Reporting Period
Chapter 4, Unit 2
7.
Ind AS 113: Fair Value Measurements
Chapter 4, Unit 3
8.
Ind AS 115: Revenue from Contracts with Customers
Chapter 5
9.
Ind AS 2: Inventories
Chapter 6, Unit 1
10.
Ind AS 16: Property, Plant and Equipment
Chapter 6, Unit 2
11.
Ind AS 23: Borrowing Costs
Chapter 6, Unit 3
12.
Ind AS 36: Impairment of Assets
Chapter 6, Unit 4
13.
Ind AS 38: Intangible Assets
Chapter 6, Unit 5
14.
Ind AS 40: Investment Property
Chapter 6, Unit 6
15.
Ind AS 105: Non-Current Assets (NCA) held for Sale & Chapter 6, Unit 7 Discontinued Operations (DO)
16.
Ind AS 116: Leases
Chapter 6, Unit 8
17.
Ind AS 41: Agriculture
Chapter 7, Unit 1
18.
Ind AS 20: Accounting for Government Grants and Disclo- Chapter 7, Unit 2 sure of Government Assistance
19.
Ind AS 102: Share Based Payment
Chapter 7, Unit 3
20.
Ind AS 19: Employee Benefits
Chapter 8, Unit 1
21.
Ind AS 37: Provision, Contingent Liability and Contingent Chapter 8, Unit 2 Assets
22.
Ind AS 12: Income Taxes
23.
Ind AS 21: The Effects of Changes in Foreign Exchange Chapter 9, Unit 2 Rates
24.
Ind AS 24: Related Party Disclosures
Chapter 9, Unit 1
I-13
Chapter 10, Unit 1
I-14 S. No.
CHAPTER-WISE COMPARISON WITH STUDY MATERIAL
Chapter Name
Study Material Chapter
25.
Ind AS 33: Earnings Per Share
Chapter 10, Unit 2
26.
Ind AS 108: Operating Segments
Chapter 10, Unit 3
27.
Ind AS 32: Financial Instruments (FI) – Presentation
Chapter 11
28.
Ind AS 109: Financial Instruments (FI) – Recognition and Chapter 11 Measurement
29.
Ind AS 103: Business Combination
Chapter 12
30.
Ind AS 110: Consolidated Financial Statements
Chapter 13, Unit 3
31.
Ind AS 111: Joint Arrangements
Chapter 13, Unit 5
32.
Ind AS 28: Investment in Associates and Joint Ventures
Chapter 13, Unit 6
33.
Ind AS 27: Separate Financial Statements
Chapter 13, Unit 7
34.
Ind AS 101: First-Time Adoption of Ind AS
Chapter 14
35.
Professional and Ethical Duty of a Chartered Accountant
Chapter 16
36.
Accounting and Technology
Chapter 17
Contents PAGE Chapter-wise Marks Distribution
I-5
Previous Exams Trend Analysis
I-9
Chapter-wise Comparison with Study Material
I-13
CHAPTER 1
Framework for Financial Reporting under Ind AS
1.1
CHAPTER 2
Ind AS 1 : Presentation of Financial Statements
2.1
CHAPTER 3
Ind AS 34 : Interim Financial Reporting
3.1
CHAPTER 4
Ind AS 7 : Cash Flow Statement
4.1
CHAPTER 5
Ind AS 8 : Accounting Policies, Changes in Accounting Estimates and Errors
5.1
CHAPTER 6 Ind AS 10 : Events after Reporting Period
6.1
CHAPTER 7 Ind AS 113 : Fair Value Measurements
7.1
CHAPTER 8
Ind AS 115 : Revenue from Contracts with Customers
I-15
8.1
I-16
CONTENTS PAGE
CHAPTER 9
Ind AS 2 : Inventories
9.1
CHAPTER 10
Ind AS 16 : Property, Plant and Equipment
10.1
CHAPTER 11
Ind AS 23 : Borrowing Costs
11.1
CHAPTER 12
Ind AS 36 : Impairment of Assets
12.1
CHAPTER 13
Ind AS 38 : Intangible Assets
13.1
CHAPTER 14
Ind AS 40 : Investment Property
14.1
CHAPTER 15
Ind AS 105 : Non-Current Assets (NCA) held for Sale & Discontinued Operations (DO)
15.1
CHAPTER 16
Ind AS 116 : Leases
16.1
CHAPTER 17
Ind AS 41 : Agriculture
CHAPTER 18 Ind AS 20 : Accounting for Government Grants and Disclosure of Government Assistance CHAPTER 19
Ind AS 102 : Share Based Payment
17.1 18.1
19.1
CHAPTER 20
Ind AS 19 : Employee Benefits
20.1
CHAPTER 21
Ind AS 37 : Provision, Contingent Liability and Contingent Assets
21.1
CHAPTER 22
Ind AS 12 : Income Taxes
22.1
CHAPTER 23
Ind AS 21 : The effects of changes in foreign exchange rates
23.1
CONTENTS
I-17 PAGE
CHAPTER 24
Ind AS 24 : Related Party Disclosures
24.1
CHAPTER 25
Ind AS 33 : Earnings per Share
25.1
CHAPTER 26
Ind AS 108 : Operating Segments
26.1
CHAPTER 27
Ind AS 32 : Financial Instruments (FI) - Presentation
27.1
CHAPTER 28
Ind AS 109 : Financial Instruments (FI) – Recognition and Measurement
28.1
CHAPTER 29
Ind AS 103 : Business Combination
29.1
CHAPTER 30
Ind AS 110 : Consolidated Financial Statements
30.1
CHAPTER 31
Ind AS 111 : Joint Arrangements
31.1
CHAPTER 32
Ind AS 28 : Investment in Associates and Joint Ventures
32.1
CHAPTER 33
Ind AS 27 : Separate Financial Statements
33.1
CHAPTER 34
Ind AS 101: First-Time Adoption of Ind AS
34.1
CHAPTER 35
Professional and Ethical duty of a Chartered Accountant
35.1
CHAPTER 36
Accounting and Technology
MULTIPLE CHOICE QUESTIONS
36.1 M.1
11
8=3 0B !" ) 1>AA>F8=6 2>BCB
CHAPTER
Que. 1. How will you capitalize the interest when qualifying assets are funded by borrowings in the nature of bonds that are issued at discount? Y Ltd. issued at the start of year 1, 10% (interest paid annually and having maturity period of 4 years) bonds with a face value of ` 2,00,000 at a discount of 10% to finance a qualifying asset which is ready for intended use at the end of year 2. Compute the amount of borrowing costs to be capitalized if the company amortizes discount using Effective Interest Rate method by applying 13.39% p.a. of EIR. [RTP May 2021] Ans. : Capitalization Method: As per the Standard, borrowing costs may include interest expense calculated using the effective interest method. Capitalization of Interest: Hence based on the above explanation the amount of borrowing cost of years 1 & 2 are to be capitalized and the borrowing cost relating to years 3 & 4 should be expensed. Quantum of Borrowing: The value of the bond to Y Ltd. is the transaction price i.e. ` 1,80,000 (2,00,000 – 20,000). Therefore, Y Ltd. will recognize the borrowing at ` 1,80,000. Computation of the amount of Borrowing Cost to be Capitalized: Y Ltd. will capitalize the interest (borrowing cost) using the effective interest rate of 13.39% for two years as the qualifying asset is ready for intended use at the end of the year 2, the details of which are as follows:
11.1
11.2 Year
IND AS 23 : BORROWING COSTS
Opening Borrowing
@ 13.39% to be capitalized
Interest expense
Total
Interest Closing paid Borrowing
(1)
(2)
(3)
(4)
(3) – (4)
1
1,80,000
24,102
2,04,102
20,000
1,84,102
2
1,84,102
24,651
2,08,753
20,000
1,88,753
48,753
Accordingly, borrowing cost of ` 48,753 will be capitalized to the cost of qualifying asset. Que. 2. [Based on Para Nos. 5, 6(e) and 6A(i)] ABC Ltd. has taken a loan of USD 20,000 on April 1, 20X1 for constructing a plant at an interest rate of 5% per annum payable on annual basis. On April 1, 20X1, the exchange rate between the currencies i.e. USD vs. Rupees was `45 per USD. The exchange rate on the reporting date i.e. March 31, 20X2 is `48 per USD. The corresponding amount could have been borrowed by ABC Ltd. from State Bank of India in local currency at an interest rate of 11% per annum as on April 1, 20X1. Compute the borrowing cost to be capitalized for the construction of plant by ABC Ltd. [MTP April 2019] Ans. : Step 1: Interest on Foreign currency loan for the period: USD 20,000 × 5% = USD 1,000 Converted in ` = USD 1,000 × ` 48/USD = ` 48,000 Step 2: Interest that would have resulted if the loan was taken in Functional Currency: USD 20,000 × ` 45/USD × 11% = ` 99,000 Step 3: Amount of exchange loss covered by Para 6(e) + 6A(i): Lower of the following: (a) Actual exchange loss = USD 20,000 × (48 - 45) = ` 60,000 (b) Difference between Interest on Foreign Currency borrowing and Functional Currency borrowing = Step 2 - Step 1 = ` 99,000 - 48,000 = ` 51,000
11.3
IND AS 23 : BORROWING COSTS
Thus, Only exchange loss to the extent of ` 51,000 is considered as borrowing costs. Total borrowing cost to be capitalized: Particulars
Amount
Interest cost on borrowing
`48,000
Exchange difference to the extent considered to be an adjustment to Interest cost
` 51,000
Total
` 99,000
Note: The exchange difference of ` 51,000 has been capitalized as borrowing cost and the remaining ` 9,000 will be expensed off in the Statement of Profit and loss. Que. 3. An entity constructs a new office building commencing on 1st September, 2018, which continues till 31st December, 2018 (and is expected to go beyond a year). Directly attributable expenditure at the beginning of the month on this asset are ` 2 Lakhs in September 2018 and ` 4 Lakhs in each of the months of October to December 2018. The entity has not taken any specific borrowings to finance the construction of the building but has incurred finance costs on its general borrowings during the construction period. During the year, the entity had issued 9% debentures with a face value of ` 30 Lakhs and had an overdraft of ` 4 Lakhs, which increased to ` 8 Lakhs in December 2018. Interest was paid on the overdraft at 12% until 1st October, 2018 and then the rate was increased to 15%. Calculate the Capitalization rate for computation of borrowing cost in accordance with Ind AS ‘Borrowing Cost’. [November 2019 Examination - 8 Marks] Ans. : Computation of capitalization rate on borrowings other than specific borrowings: Step 1: Computation of weighted Average amount of interest: General borrowings
9% Debentures Bank overdraft
Period outstanding 1 12 months 9 months 2 months 1 month
Amount of loan (`) 2 30,00,000 4,00,000 4,00,000 8,00,000 46,00,000
Rate of interest p.a. 3 9% 12% 15% 15%
Weighted average amount of interest (`) [(2 × 3) × (1)] 2,70,000 36,000 10,000 10,000 3,26,000
11.4
IND AS 23 : BORROWING COSTS
Step 2: Weighted average amount of general borrowings: = {30,00,000 × (12/12)} + {4,00,000 × (11/12)} + {8,00,000 × (1/12)} = 34,33,334 Step 3: Capitalization rate: = (Weighted average amount of interest/Weighted average amount of general borrowings) × 100 = (3,26,000/34,33,334) × 100 = 9.50% p.a. Que. 4. Zera Limited obtained a term loan of ` 1,080 lakh for complete renovation and modernization of its factory on 1st April, 2021. Plant and Machinery was acquired under the modernization scheme and installation was completed on 30th April, 2022. An expenditure of ` 910 lakhs was incurred on installation of Plant and Machinery and the balance loan was used for working capital purposes. Management of Zera Limited considers the 12 months period as substantial period of time to get the asset ready for its intended use. The company has paid total interest of ` 94.40 lakhs during financial year 2021-22 on the above loan. Discuss the treatment in the books of account of Zera Limited of interest paid of ` 94.40 lakhs during the financial year 2021-22. Will your answer be different, if the whole process of renovation and modernization gets completed by 31st December, 2021? [May 2022 Examination - 7 Marks] Ans. : What Ind AS 23 states: As per Ind AS 23, borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset form part of the cost of that asset. Other borrowing costs are recognized as an expense. Where, a qualifying asset is an asset that necessarily takes a substantial period of time to get ready for its intended use or sale. Analysis: Accordingly, the treatment of interest of ` 94.40 lakhs occurred during the year 2021-22 would be as follows: Case I - When construction of asset completed on 30th April, 2022: The treatment for total borrowing cost of ` 94.40 lakhs will be as follows: Purpose
Nature
Interest to be capitalized ` in lakh
Modernization & renovation of plant & machinery
Qualifying asset
[94.40 × (910/1,080)] = 79.54
Interest to be charged to P&L A/c ` in lakh
11.5
IND AS 23 : BORROWING COSTS
Purpose
Nature
Working Capital
Not a qualifying asset
Interest to be capitalized ` in lakh
79.54
Interest to be charged to P&L A/c ` in lakh [94.40 × (170/1,080)] = 14.86 14.86
Case II - When construction of assets is completed by 31st December, 2021: When the process of renovation gets completed in less than 12 months, the plant and machinery will not be considered as a qualifying asset until and unless then entity specifically considers that the asset took substantial period for completing its construction. Accordingly, the whole of interest will be charged off to Profit and Loss account. Que. 5. Nikka Limited has obtained a term loan of ` 620 lakhs for a complete renovation and modernization of its Factory on 1st April, 20X1. Plant and Machinery was acquired under the modernization scheme and installation was completed on 30th April, 20X2. An expenditure of 510 lakhs was incurred on installation of Plant and Machinery, 54 lakhs has been advanced to suppliers for additional assets (acquired on 25th April, 20X1) which were also installed on 30th April, 20X2 and the balance loan of ` 56 lakhs has been used for working capital purposes. Management of Nikka Limited considers the 12 months period as substantial period of time to get the asset ready for its intended use. The company has paid total interest of ` 68.20 lakhs during financial year 20X1-20X2 on the above loan. The accountant seeks your advice how to account for the interest paid in the books of account. Will your answer be different, if the whole process of renovation and modernization gets completed by 28th February, 20X2? [RTP November 2021] Ans. : The treatment of Interest of ` 68.20 lakhs occurred during the year 20X120X2 would be as follows: Case I - When construction of asset completed on 30th April, 20X2: The treatment for total borrowing cost of `68.20 lakhs will be as follows: Purpose
Nature
Interest to be capitalized
Interest to be charged to profit and loss account
` in lakh
` in lakh
Modernization and renovation of plant and machinery
Qualifying asset
68.20 × (510/620)
Advance to suppliers for additional assets
Qualifying asset
68.20 × (54/620)
= 56.10 = 5.94
11.6
IND AS 23 : BORROWING COSTS
Purpose
Nature
Interest to be capitalized
Interest to be charged to profit and loss account
` in lakh Working Capital
Not a qualifying asset
` in lakh 68.20 x (56/620) = 6.16
62.04
6.16
Case II - When construction of assets is completed by 28th February, 20X2: When the process of renovation gets completed in less than 12 months, the plant and machinery and the additional assets will not be considered as qualifying assets (until and unless the entity specifically considers that the assets took substantial period of time for completing their construction). Accordingly, the whole of interest will be required to be charged off/expensed off to Profit and loss account. Que. 6. Kaba Ltd. began construction of a new building at an estimated cost of ` 7 lakh on 1st April, 2017. To finance construction of the building it obtained a specific loan of ` 2 lakh 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
`7,00,000
12%
`9,00,000
11%
The expenditure incurred on the construction was: April, 2017
` 1,50,000
August, 2017
` 2,00,000
October, 2017
` 3,50,000
January, 2018
` 1,00,000
The construction of 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 entry for capitalizing the cost and borrowing cost in respect of the building as on 31st January, 2018. [RTP November 2018] Ans. : Computation of capitalization rate on borrowings other than specific borrowings: Step 1: Computation of weighted Average amount of interest:
11.7
IND AS 23 : BORROWING COSTS
Amount of loan (`)
Rate of interest
7,00,000
12%
Amount of interest (`) 84,000
9,00,000
11%
99,000
16,00,000
1,83,000
Step 2: Weighted average amount of general borrowings: = 7,00,0000 + 9,00,000 = 16,00,000. Step 3: Capitalization rate: = (Weighted average amount of interest/Weighted average amount of general borrowings) × 100 = 1,83,000/16,00,000) × 100 = 11.4375% Computation of Borrowing cost eligible to be capitalized: (Based on weighted average accumulated expenses) 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. Date of expenditure
Amount spent
Type of Borrowing
Workings
Amount
1st April, 2017
1,50,000
Specific
1,50,000 × 9% × 10/12
11,250
1st August, 2017
2,00,000
Specific
50,000 × 9% × 10/12
3,750
General
1,50,000 × 11.4375% × 6/12
8,578.125
1st October, 2017
3,50,000
General
3,50,000 × 11.4375% × 4/12
13,343.75
1st January, 2018
1,00,000
General
1,00,000 × 11.4375% × 1/12
953.125 37,875
Computation of Total expenses to be capitalized for building: `
Particulars Cost of building ` (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
31-1-2018 Building account To Bank account To Interest payable (borrowing cost) (Being expenditure incurred on construction of building and borrowing cost thereon capitalized)
`
`
8,37,875 8,00,000 37,875
11.8
IND AS 23 : BORROWING COSTS
Que. 7. 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: Payment date
Amount (`’000)
1st April, 20X1
200
30th June, 20X1
600
31st December, 20X1
1,200
31st March, 20X2
200
Total
2,200
Entity A’s borrowings at its year-end of 31st March, 20X2 were as follows: (a) 10%, 4-year note with simple interest payable annually, which relates specifically to the project; debt outstanding on 31st March, 20X2 amounted to ` 7,00,000. Interest of ` 65,000 was incurred on these borrowings during the year, and interest income of ` 20,000 was earned on these funds while they were held in anticipation of payments. (b) 12.5% 10-year note with simple interest payable annually; debt outstanding at 1st April, 20X1 amounted to `10,00,000 and remained unchanged during the year; and (c) 10% 10-year note with simple interest payable annually; debt outstanding at 1st April, 20X1 amounted to `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? [RTP November 2019; MTP October 2020] Ans. : Computation of capitalization rate on borrowings other than specific borrowings: Step 1: Computation of weighted Average amount of interest: Amount of loan (`)
Rate of interest
Amount of interest (`)
10,00,000
12.5%
1,25,000
15,00,000
10%
1,50,000
25,00,000 Step 2: Weighted average amount of general borrowings: = 10,00,000 + 15,00,000 = 25,00,000.
2,75,000
11.9
IND AS 23 : BORROWING COSTS
Step 3: Computation of Capitalization rate: = (Weighted average amount of interest/Weighted average amount of general borrowings) × 100 = 2,75,000/25,00,000 × 100 = 11% Analysis of expenditure: Date
Expenditure (`’000)
Amount allocated in General borrowings (`’000)
Weighted average based on the period outstanding (`’000)
1st April 20X1
200
Nil
Nil
30th June 20X1
600
100 (Note)
100 × 9/12 = 75
31st Dec. 20X1
1,200
1,200
1,200 × 3/12 = 300
31st March 20X2
200
200
200 × 0/12 = 0
Total
2,200
375
Note: 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. Borrowing cost Eligible to be capitalized: Particulars On Specific borrowings On General borrowings (3,75,000 × 11%)
Amount (`) 65,000 41,250
Total
1,06,250
Less: Interest income on specific borrowings
(20,000)
Amount eligible for capitalization
Therefore, the borrowing costs to be capitalized are ` 86,250.
86,250
Financial Reporting (FR) | CRACKER AUTHOR PUBLISHER DATE OF PUBLICATION EDITION ISBN NO NO. OF PAGES BINDING TYPE
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PARVEEN SHARMA, KAPILESHWAR BHALLA TAXMANN DECEMBER 2023 9TH EDITION 9789357787321 700 PAPERBACK
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Description This book is prepared exclusively for the requirements of the Final Level of Chartered Accountancy Examination. It covers the questions & detailed answers strictly as per the new syllabus of ICAI. The Present Publication is the 9th Edition for CA-Final | New Syllabus | May 2024 Exams. This book is authored by CA Parveen Sharma & CA Kapileshwar Bhalla, with the following noteworthy features: u Strictly as per the New Syllabus of ICAI u Coverage of this book includes:
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