Capitalisation of Exchange rate difference

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Angayarkanni Murugesan (Querist)
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04 August 2008 Sir,
the fixed asset is imported in December 2007 and is capitalised at the exchange rate prevailing on the date of bill of entry. The purchase consideration is payable only after 180 days. when the balance sheet is prepared, the current liabilities and the fixed assets have been shown at the rate as on 31.03.08 and the difference is adjusted to Fixed assets and taken to P&L account. Depreciation also adjusted accordingly. Is this entry correct?

S.Srinivasaraghavan

S.Srinivasaraghavan (Expert)
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04 August 2008 Any adjustment due to exchange difference arising after capitalisation will be accounted as profit or loss due to exchange
differences.

CA N RAJA

CA N RAJA (Expert)
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05 August 2008 Consequent to Companies Accounting Standard Rules 2006, treatment suggested prescribed in that Standard should be adopted irrespective of the methods suggested under Sch VI of the Companies Act.

Accordingly, exchange difference arising on restatement of loan taken for financing fixed asset should be charged to Profit and Loss Account AND SHOULD NOT BE ADJUSTED TO FIXED ASSET.

In your case, exchange difference cannot be adjusted against Fixed Asset. Consequently, there cannot be additional effect on depreciation.

Angayarkanni Murugesan

Angayarkanni Murugesan (Querist)
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06 August 2008 Thank you very much Sirs

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