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Under Appendix D of Ind AS 115, BORROWING COSTS attributable to a service-concession arrangement are:
AExpensed in the period incurred, UNLESS the operator has a contractual right to receive an intangible asset (toll-collection licence) — in which case they may be capitalised during the construction phase
BCapitalised only if the financial-asset model applies
CAlways expensed because concessions are operating arrangements, not investments
DAlways capitalised during construction, then expensed during operation
Answer & Solution
Correct answer: A. Expensed in the period incurred, UNLESS the operator has a contractual right to receive an intangible asset (toll-collection licence) — in which case they may be capitalised during the construction phase
Para 22 of Appendix D — under the FINANCIAL ASSET model, borrowing costs are EXPENSED (the operator has a receivable, not a qualifying asset under Ind AS 23). Under the INTANGIBLE ASSET model (toll-charging right), the intangible is a qualifying asset under Ind AS 23, so borrowing costs may be capitalised during construction. This is the opposite of intuition — financial-asset BOC expensed, intangible-asset BOC capitalised.
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