Para 4(e) of As-16
This query is : Resolved
14 August 2010
I have raised the same in context para 4(e) of As-16.As per para 4(e)exchange rate fluctuation in relation to foreign currency loan to the extent of interest adjustment cost is capitalised and the excess over the interest cost should be given effect as per AS-11.If the company has exchange gain in relation to foreign currency loan for asset under consturction, should the same reduce the cost of asset under construction or credited to P & L Account ? The same case happens in majority of companies during the F.Y 09-10 in case foreign loan for asset under construction,as the exchange rate reduces as compared rate as on 1/04/09. The decision will affect indian corporate history to large extent.Can you please immediately reply considering para 4 (e)of As-16 and notification of As-11 issued on 31st March,2009 in above situation
I have raised the same in context para 4(e) of As-16.As per para 4(e)exchange rate fluctuation in relation to foreign currency loan to the extent of interest adjustment cost is capitalised and the excess over the interest cost should be given effect as per AS-11.If the company has exchange gain in relation to foreign currency loan for asset under consturction, should the same reduce the cost of asset under construction or credited to P & L Account ? The same case happens in majority of companies during the F.Y 09-10 in case foreign loan for asset under construction,as the exchange rate reduces as compared rate as on 1/04/09. The decision will affect indian corporate history to large extent.Can you please immediately reply considering para 4 (e)of As-16 and notification of As-11 issued on 31st March,2009 in above situation
14 August 2010
Please note the Limited Revision to Accounting Standard (AS) 11 (revised 2003)
"6. This Statement does not deal with exchange differences arising from foreign currency borrowings to the extent that they are regarded as an adjustment to interest costs (see paragraph4(e) of AS 16, Borrowing Costs)."More expert views are awaited.
"6. This Statement does not deal with exchange differences arising from foreign currency borrowings to the extent that they are regarded as an adjustment to interest costs (see paragraph4(e) of AS 16, Borrowing Costs)."More expert views are awaited.
18 August 2010
Snehal and Sukanya,
AS 11 para 6 ignores this transaction only because it is covered by the AS 16. however the excess of difference between interest on foreign loan and local loan is definetely covered by the AS 11.
In respect of the query your details are as follows:
1) explanation in AS 16 is applicable only in the cases interest on foreign loan is more than the interest on the local loan due to exchange rate difference.
2) the same is not applicable in case of the vice versa situation.
3) and even as per the AS - 11 revised, the exchange differences should be charged off to the profit and loss account as from the effective date, and FY09-10 is covered in it i believe.
3) in your case, such calculated gain/surplus should be taken to the profit and loss account as an income, or your can set off with your foreign exchange loss for the period.
Hope this clarification will help. write to me in case of further issues.
AS 11 para 6 ignores this transaction only because it is covered by the AS 16. however the excess of difference between interest on foreign loan and local loan is definetely covered by the AS 11.
In respect of the query your details are as follows:
1) explanation in AS 16 is applicable only in the cases interest on foreign loan is more than the interest on the local loan due to exchange rate difference.
2) the same is not applicable in case of the vice versa situation.
3) and even as per the AS - 11 revised, the exchange differences should be charged off to the profit and loss account as from the effective date, and FY09-10 is covered in it i believe.
3) in your case, such calculated gain/surplus should be taken to the profit and loss account as an income, or your can set off with your foreign exchange loss for the period.
Hope this clarification will help. write to me in case of further issues.
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