13 June 2014
Well, the exchange differences arise over the period the foreign currency loan remains unpaid. Every year the loan remains unpaid and an exchange difference takes place, the usual practice as per AS 11 is to charge it to revenue, or capitalise the exchange difference as per AS 16 (to the extent the exchange difference are upto the difference in borrowing costs). But if an entity adopts the option under Para 46A of AS 11, the entire exchange difference will be capitalised. There shall be no impact on the profit and loss account except for the additional depreciation in later years. The loan liability will be adjusted upwards or downwards (as per the exchange differences) and the corresponding debit/credit shall be given to the asset account. As and when the loan is paid, it shall go off the balance sheet along with cash.
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