I have procured a long term loan from foreign bank (Henceforth be called as "Bank A") at Libor 6months rate + premium and the principal is repayable at the end of 5 years. To avoid the interest risk and exchange rate risk, I enter into a swap agreement for interest with another bank (Henceforth be called as "Bank B") and determine a fixed amount of loan in INR withd a fixed interest rate. Under this agreement, I will be paying interest at fixed rate in INR to Bank B and Bank B shall make payments to Bank A in foreign currency. At the end of 5 years, I will repay the principal in INR to Bank B and Bank B shall pay the respective Foreign currency amount to Bank A. Hence all the settlements by us is in INR only. However the INR loan amount is determined with foreign loan as underlying item. So does this fall under the meaning of foreign currency transaction and the liability should be reinstated at closing rate at the end of each reporting period?
Revaluation of foreign currency loan
Replies (1)
Hi
There are two seperate components here one is foreign currency loan and second is derivative (Swap) entered for purpose of hedging the intrest rate and curency risk. Company can not set off both component against each other in its financial statement. Both components needs to be recorded seperately. The foreign currency loan outstanding in the books needs to be restated as per requirements of AS 11on reporting date however the derivative need to be accounted either under AS 11 or as per ICAI announcement for derivative (assuming that AS 30 is anot adopted by the company).
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