CAPITALIZATION OF FOREIGN FLUCTUATION DIFFERENCE

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This discussion addresses the correct accounting treatment for foreign exchange differences when an asset's value changes between payment and receipt. The consensus is that capitalisation should reflect the exchange rate on the transaction date (supply date). Even if the fluctuation is booked in a subsequent financial year, the capitalisation itself is considered correct if it aligns with the original transaction date's rate.

AJAY SHARMA

AJAY SHARMA (Querist)

16 April 2021 Assume in F.Y 2019-20, If A Party paid USD 1000@70/- in term of Indian Rs. 70,000 and later on he received the assets @75/- i.e.75,000/-. Now the Difference should be capitalized.
But They did not capitalized in 2019-20. Instead of it the difference amount of Rs. 5,000 has been capitalized in F.Y 2020-21.
Now how can i Handle this. What will be exact treatment of this.

CA R SEETHARAMAN

CA R SEETHARAMAN (Expert)

16 April 2021 Capitalisation should be done based exchange rate prevailing on the transaction date. Transaction date is supply date. So capitalisation of 5000 in next year is okay.

AJAY SHARMA

AJAY SHARMA (Querist)

16 April 2021 Sir Actually They Paid in 2019-20 & Bill Booked is also in 2019-20. The Asset received on 2019-20. Only Fluctuation booked in 2020-21. Is it correct?

CA R SEETHARAMAN

CA R SEETHARAMAN (Expert)

17 April 2021 Yes, it's correct, as the fluctuation related to transaction date.

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