LT Ltd. is in the process of constructing a building. The construction process is expected to take about 18 months from 1st January 20X1 to 30th…

Applying paragraph 17 of Ind AS 23 to the fact pattern, the entity would not begin capitalising borrowing costs until it incurs borrowing costs (i.e. from 1st July, 20X1) In determining the expenditures on a qualifying asset to which an entity applies the capitalisation rate (paragraph 14 of Ind AS 23), the entity does not disregard expenditures on the qualifying asset incurred before the entity obtains the general borrowings. Once the entity incurs borrowing costs and therefore satisfies all three conditions in para 17 of Ind AS 23, it then applies paragraph 14 of Ind AS 23 to determine the expenditures on the qualifying asset to which it applies the capitalisation rate. Calculation of borrowing cost for financial year 20X0-20X1 Expenditure Capitalization Period (current year) Weighted average Accumulated Expenditure Date Amount 1 st January 20X1 5 crore 0/3 Nil Borrowing Costs eligible for capitalisation = NIL. LT Ltd. cannot capitalise borrowing costs before 1st July, 20X1 (the day it starts to incur borrowing costs). Calculation of borrowing cost for financial year 20X1-20X2 Expenditure Capitalization Period (current year) Weighted average Accumulated Expenditure Date Amount 1 st January, 20X1 5 crore 9/12* 3.75 crore 30 th June, 20X1 20 crore 9/12 15 crore 31 st March, 20X2 20 crore 0/12 Nil Total 18.75 crore Borrowing Costs eligible for capitalisation = 18.75 cr. x 10% = 1.875 cr. *LT Ltd. cannot capitalise borrowing costs before 1st July, 20X1 (the day it starts to incur borrowing costs). Accordingly, this calculation uses a capitalization period from 1st July, 20X1 to 31st March, 20X2 for this expenditure. Calculation of borrowing cost for financial year 20X2-20X3 Expenditure Capitalization Period (current year) Weighted average Accumulated Expenditure Date Amount 1 st January, 20X1 5 crore 3/12 1.25 crore 30 th June, 20X1 20 crore 3/12 5 crore 31 st March, 20X2 20 crore 3/12 5 crore 31 st March, 20X2 1.875 crore 3/12 0.47 crore 30 th June, 20X2 5 crore 0/12 Nil Total 11.72 crore Borrowing Costs eligible for capitalisation = 11.72 cr. x 10% = 1.172 cr.