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CA supriyo saha (Querist)

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.

CA Siddhartha Bhardwaj

CA Siddhartha Bhardwaj (Expert)

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.

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