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Accounting for preoperative gains

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10 November 2007 What is the accounting treatment of foreign exchange gains arising out of reinstatement of loans taken to acquire fixed assets during the pre-operative period? Whether the same to be charged to P&L or deducted from the pre-operative expenses?

10 November 2007 forex gains on restatement of forex exposures during pre-operative period may have to be credited to Pre operative expenses as P&L account in such circumstances cannot be drawn for the busines is yet to commence. There has to be commencement of commercial production in order to draw P&L account.

10 November 2007 As AS11,foriegn exchange gains has to be credited in P&l a/c.
Whereas in case of Companies registered Under Companies Act,any difference in foriegn exchange has to be adjusted in fixed assets if that tranasaction is related to fixed asset.Since the related law will prevail over the AS 11 if your query is related to companies second answer may be applied.

In Challapalli Sugar Mill case also SC decided that interest paid during the pre construction period to be capitalised viz to be added with respective asset cost.

10 November 2007 As per AS-11 foreign exchange differences has to be taken in P & L account. Furhter one would prepare a P & L account only after the commencemetn of actual operation so then it can be taken care. There is no need to set it off initially

10 November 2007 AS-11 last revised in 2004 and is under revision.

12 November 2007 It is to be net with fixed assets

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