MCQ Test 1

When the funds have been borrowed generally then the amount of borrowing costs to be capitalized is to be calculated by applying a capitalization rate to the expenditure on that asset. The capitalization rate, here, means the weighted average of the borrowing costs applicable to the borrowings of the enterprise that are outstanding during the period, other than borrowings made specifically for obtaining a qualifying asset. However, the amount of borrowing costs capitalized during a period should not exceed the amount of borrowing costs incurred during that period. In case of borrowings which are not specific to the qualifying asset (also known as general borrowings). In the given case, the borrowing for truck is specific and will be excluded to arrive at the capitalisation rate. Capitalisation Rate = Total Interest / Total Borrowings x 100 = 43,000/5,00,000 = 8.6% Amount to be capitalised = 4,00,000 x 8.6% = 34,400

Likith kumar Duganapalli

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26-Dec-24 10:50