Taxmann's Financial Reporting (FR) | CRACKER

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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