Dear friends
Situation: an entity has imported a machinery from a foreign country for a credit term of 90 days. as a result there is a exchange difference due to difference in dollar value between record date and payment date.
kindly advice me whether such exchange difference can be capitalised or not ?
Exchange rate difference should note be capitalised. Such difference should be debited/credited to P&L Account. (AS 11).
Dear friend, the exchange difference arising from purchase of FA from outsside india should be capitalised as per Sch VI but as per AS 11 (Revised) this should be expensed out.
But ICAI has pronounced that AS 11(revised) would take backseat till the ammendment in SCh VI.
So, if FA is purchased from Outside India, the Exchange difference should be capitalised.
Further Section 43A of INcome Tax allows the Capitalisation.
According to the Annexure to the Companies (Accounting Standards) Rules, 2006 (Notification No. GSR 739 (E), dated 07.12.2006, the accounting treatment of exchange differences contained in AS 11 is required to be followed by companies irrespective of relevent provisions of Schedule VI to the Companies Act, 1956.
Dear Frnd,
The cost of FA on account of different exchange rate should be capitalised. AS-10 says
"The cost of a fixed asset may undergo changes subsequent to its acquisition
or construction on account of exchange fluctuations, price adjustments,
changes in duties or similar factors."
Please refer to ICAI announcement in October 2003 regarding withdrawl of relevent part of AS 11(revised) conflicting Sch VI
The link is https://www.caalley.com/o_icai/ann07_0721.html
as per as-11 purchase is recorded as per bill of entry's rate & payment is recorded as per bank conversion rule & diff will be transfered to p & l a/c
CAclubindia
