Mumbai Challengers Ltd., a listed entity, is a sports organization owning several cricket and hockey teams. Owing to the proposed schedules of…

CA Final · Financial Reporting · MTP · May 2026
Mumbai Challengers Ltd., a listed entity, is a sports organization owning several cricket and hockey teams. Owing to the proposed schedules of Indian Hockey League as well as Cricket Premier Tournament, Mumbai Challengers Ltd. needs a new stadium to host the sporting events. This stadium will form a part of the Property, Plant and Equipment of the company. Mumbai Challengers Ltd. began the construction of the stadium on 1 December, 20X1. The construction of the stadium was completed in 20X2-20X3. Costs directly related to the construction amounted to 140 crores in December 20X1. Thereafter, 350 crores have been incurred per month until the end of the financial year. The company has not taken any specific borrowings to finance the construction of the stadium, although it has incurred finance costs on its regular overdraft during the period, which were avoidable had the stadium not been constructed. Mumbai Challengers Ltd. has calculated that the weighted average cost of the borrowings for the period 1 December 20X1 to 31 March 20X2 amounted to 15% per annum on an annualized basis. The company seeks advice on the treatment of borrowing costs in its financial statements for the year ending 31 March 20X2.

Suggested Answer and Working Notes:

As per Ind AS 23 Borrowing Costs, an entity shall capitalize borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset (i.e. an asset that necessarily takes a substantial period of time to get ready for its intended use or sale) as part of the cost of that asset. The borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset are those borrowing costs that would have been avoided if the expenditure on the qualifying asset had not been made. To the extent that an entity borrows funds generally and uses them for the purpose of obtaining a qualifying asset, the entity shall determine the amount of borrowing costs eligible for capitalization by applying a capitalization rate to the expenditures on that asset. The capitalization rate shall be the weighted average of the borrowing costs applicable to all borrowings of the entity that are outstanding during the period. The capitalization rate of the borrowings of Mumbai Challengers Ltd. during the period of construction is 15% per annum (as given in the question), and therefore, the total amount of borrowing costs to be capitalized is the expenditures incurred on the asset multiplied by the capitalization rate, which is as under: Particulars ₹ in crores Costs incurred in December 20X1: (140crores x 15% x 4/12) 7.000 Costs incurred in January 20X2: (350crores x 15% x 3/12) 13.125 Costs incurred in February 20X2: (350crores x 15% x 2/12) 8.750 Costs incurred in March 20X2: (350crores x 15% x 1/12) 4.375 Borrowing Costs to be capitalized in 20X1-20X2 33.250 OR Weighted average carrying amount of the stadium during 20X1-X2 is: ₹ (140 + 490 + 840 + 1,190) crores/4 = 665 crores Applying the weighted average rate of borrowings of 15% per annum, the borrowing cost to be capitalized is computed as: 665 crores x (15% x 4/12) = 33.25 crores

Topics: Ind AS 110, Ind AS 16

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