## AS 16 – General Borrowings: Capitalisation Rate
When a company uses general borrowings (i.e., borrowings not specifically tied to a QA) to partly fund a qualifying asset, the amount to capitalise is determined using the capitalisation rate.
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### Capitalisation Rate Formula
```
Total Interest on General Borrowings (Weighted)
Cap Rate = ──────────────────────────────────────────────── × 100
Total General Borrowings (Weighted Average)
```
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### Step-by-Step Approach
Step 1 – Compute the Capitalisation Rate
List all general borrowings, their amounts, and their interest rates:
```
Cap Rate = (L₁ × r₁ + L₂ × r₂ + …) / (L₁ + L₂ + …) × 100
```
Where L = loan amount, r = rate of interest.
Step 2 – Apply Cap Rate to QA Expenditure
For each tranche of expenditure on the QA, apply the cap rate weighted for the time period during which it was outstanding during the year:
```
BC to Capitalise = Expenditure on QA × Cap Rate × (Months / 12)
```
Step 3 – Cap at Actual General Borrowing Cost
The amount capitalised from general borrowings cannot exceed the total actual interest cost on those borrowings.
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### Illustration of Cap Rate Calculation
| Borrowing | Amount (₹) | Rate | Interest |
|---|---|---|---|
| Loan A | 5,00,000 | 11% | 55,000 |
| Loan B | 9,00,000 | 13% | 1,17,000 |
| Total | 14,00,000 | 1,72,000 |
```
Cap Rate = 1,72,000 / 14,00,000 × 100 = 12.29% (approx.)
```
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### Combining Specific + General Borrowings
- Calculate BC on specific borrowing first (net of idle fund income)
- Then calculate BC on general borrowing using cap rate applied to remaining QA expenditure
- Add both to get total BC to capitalise