During the course of our audit we observed that the company, being a financial institution, has taken foreign currency loans to fund its lending operations. Since no qualifying asset exists, should AS 16 be applied on the difference between (Forex fluctuation) (loss) and (interest rate differential) between foreign borrowing rate and Indian rate??? other companies within the same category aren't applying AS 16.
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As 16 application
Replies (2)
Borrowing cost can be capitalised only when there is a qualifying asset and it takes substantial period.
Hence we cannot capitalise the borrowing cost but we should apply AS 11 and transfer exchange diff to P&L as the loan is not taken for depreciable fixed asset.
AS PER GOVENMENT NOTIFICATION, FOREX GAIN OR LOSS CAN BE ADJUSTED AGAINST VALUE OF DEPRECIABLE ASSETS ALSO IN CASE OF FOREIGN LOAN TAKEN FOR SUCH ASSET
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