Doubt on as 11

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Mohamed Rafi

CA FINAL

70 Points Posted on 20 December 2012

Dear Friends,

As per para 11 (b) of AS 11, non-monetary items which are carried at historical cost should be reported on the Balance Sheet date using the exchange rate at the date of the transaction. In the subsequent para i.e. para 12, fixed assets, inventory and investment in shares is shown as example of non-monetary items. As such, fixed asset purchased through foreign currency should be reported in BS at the exchange rate at the date of transaction.
As per AS 10 para 9.1, changes in cost of fixed asset on account of exchange fluctuation subsequent to acquisition or construction of fixed asset should be included as the purchase cost and as such, forms part of the historical cost of the fixed asset.

Lets take an example. I purchased a machine at $1,00,000 on 01.06.2012. The exchange rate as on that date was Rs. 45 per dollar. The payment had to be made in 3 installments on an yearly basis starting from 01.06.2013. The exchange rate as on 31.03.2013 was Rs. 48 per dollar. As per AS 11, my liability on 31.03.2013 would be raised to Rs. 48,00,000 ($1,00,000 at Rs. 48 per dollar). The difference of Rs. 3,00,000 would be charged to P&L account.

My question is -

At what rate would fixed asset be booked on 31.03.2013?
What all entries need to be passed in the books?

Replies (3)

Giridhar S Karandikar

Team Lead

5675 Points Posted on 20 December 2012

FA will be booked at the exchange rate prevailing on Jun12 i.e. Rs 45/$. At teh time of settling the liability, the entitiy has the option to either capitalize teh eschange difference between the date of trasnaction & the date of settling the liability. In the alternative it can charge the exchange difference to P&L.

Entries would be as follows:

Jun12: FA A/C Dr 4500000

To- Supplier/Loan 4500000

while settling the liability the exchange difference if capitalized shud be added/subtracted to/from teh FA Account and and following entyr for payment shud be passed.

Supplier A/C dr

To- Bank

Mohamed Rafi

CA FINAL

70 Points Posted on 20 December 2012

Dear Mr. Giridhar,

Thanks for the early response. But i have not come across any provisions in AS 11 where it states that the exchange difference could be capitalized. It says that fixed asset being a non-monetary item should be reported at the rate existing on the transaction date only. Are you sure that there exists an option to capitalize the exchange difference in AS 11?