On 1 st April, 2024. RM Limited obtained a term loan of 50,00,000/-at an interest rate of 12% per annum from bank for the construction of a…
CA Intermediate · Advanced Accounting · PYQS · January 2026
On 1 st April, 2024. RM Limited obtained a term loan of 50,00,000/-at an interest rate of 12% per annum from bank for the construction of a building. In addition to the above loan, the company has also raised multiple non-specific borrowings as follows: 8% Debentures 30,00,000/- 15% Term Loan 60,00,000/- 10% Inter Corporate Loan 36,00,000/- RM Limited has utilized the aforesaid funds in construction of the following assets: Building 1,40,00,000/- Furniture 44,00,000/- Plant and Machinery 1,80,00,000/- Factory Shed 86,00,000/- The construction of Building, Plant and Machinery and Factory Shed took substantial period of time and was completed on 31 st March, 2025. The Furniture was purchased directly from a local manufacturer. The factory was ready to commence production on 1 st April, 2025. You are required to show the treatment of interest as per AS- 16 in respect of borrowing cost for the year ended 31 st March, 2025 in the books of RM Limited.
Suggested Answer and Working Notes:
Interest to be capitalized (on qualifying assets) Particulars Computation ₹ i. On Specific Borrowings 50,00,000 x 12% 6,00,000 ii. On Non-Specific borrowings (W.N.1) 13,35,000 iii. Amount of interest to be Capitalized (i+ii) 19,35,000 Interest transferred to Statement of Profit and Loss (on non-qualifying assets) Particulars Computation ₹ i. On Non-Specific Borrowings (W.N.1) 1,65,000 Working Notes: 1. Treatment of Interest under AS 16 on Non-Specific Borrowings Particulars Qualifying asset Computation ₹ Interest- Capitalized ₹ Interest Charged to Statement of P&L i. Building Yes (90,00,000/4,00,00,000) x 15,00,000 3,37,500 - ii. Furniture No (44,00,000/4,00,00,000) x 15,00,000 - 1,65,000 iii. Plant & Machinery Yes (1,80,00,000/4,00,00,000) x 15,00,000 6,75,000 - iv. Factory shed Yes (86,00,000/4,00,00,000) x 15,00,000 3,22,500 - Total 13,35,000 1,65,000 2. Total Amount of Interest Non-Specific Borrowings Particulars Amount of loan (a) Rate of interest (b) Amount of interest (c) = (a) x (b) Debentures 30,00,000 8% 2,40,000 Term Loan 60,00,000 15% 9,00,000 Other Corporate Loan 36,00,000 10% 3,60,000 Total 126,00,000 15,00,000
Topics: AS 16
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