Accounting standard
This query is : Resolved
05 January 2009
suppose a co. has taken loan of $10000 at 10% interest p.a with exch.rate-$1=Rs40 on 1.1.09. exch.rate on 31.3.09-$1=Rs 45. Now what amount will be charged to P/L and what amount will be treated as borrowing cost.
24 September 2011
For this purpose the local borrowing rate is also required.
Assumed that the local borrowing rate is 7%. Calculation will be made as under:
1. Interest for the period = $10,000*10%*Rs. 45 = Rs. 45,000/-
2. Increase in liability towards principal amount = $10,000*(45-40)= Rs 50,000/-
3. Interest if loan in Indian currency =
$10,000*40*7% = Rs. 28,000/-
4. Difference between interest =
Rs. 45,000 - Rs. 28,000 = Rs. 17,000/-
Out of increase of Rs. 50,000/-, Rs. 17,000/- would be considered as borrowing cost.
The total borrowing cost will be =
Rs. 45,000 + Rs. 17,000 = Rs. 62,000/-
Balance Rs. 33,000/- (Rs. 50,000 - Rs. 17,000) shall be transferred to P&L account as per AS-11.
Assumed that the local borrowing rate is 7%. Calculation will be made as under:
1. Interest for the period = $10,000*10%*Rs. 45 = Rs. 45,000/-
2. Increase in liability towards principal amount = $10,000*(45-40)= Rs 50,000/-
3. Interest if loan in Indian currency =
$10,000*40*7% = Rs. 28,000/-
4. Difference between interest =
Rs. 45,000 - Rs. 28,000 = Rs. 17,000/-
Out of increase of Rs. 50,000/-, Rs. 17,000/- would be considered as borrowing cost.
The total borrowing cost will be =
Rs. 45,000 + Rs. 17,000 = Rs. 62,000/-
Balance Rs. 33,000/- (Rs. 50,000 - Rs. 17,000) shall be transferred to P&L account as per AS-11.
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