CAF-1 · Chapter 2 · Question 3 of 15
Delta Inc. borrowed Rs. 40 million specifically to construct a qualifying asset. Before the funds were needed for construction, Delta temporarily invested the unused portion and earned Rs. 1.5 million in interest income. How should this investment income be treated?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: B) Deducted from the total borrowing costs eligible for capitalization.
Explanation
IAS 23 dictates that the amount of borrowing costs eligible for capitalization on a specific borrowing must be reduced by any investment income earned on the temporary investment of those borrowed funds.
More IAS 23 Borrowing Costs MCQs
- Q5Which of the following costs is NOT considered a borrowing cost under IAS 23?
- Q6What is the condition for capitalizing borrowing costs regarding the probability of economic benefits?
- Q7When does the capitalization of borrowing costs commence?
- Q8During a major construction project, work is suspended for four months due to a prolonged labor strike. What should happen to the…
- Q9If a temporary delay is a necessary part of getting an asset ready (e.g., waiting for high water levels to recede during bridge…