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Exchange gain loss

kiran (accountant) (449 Points)

06 May 2025

Machine import in Mar 24 that time exchange rate 83$ Machine value 7500$

Same machine payment done in April 24 that time rate 86.45 $

Exchange difference we booked under CWIP it's correct?

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4 Replies

Dhirajlal Rambhia (SEO Sai Gr. Hosp.) (194161 Points)
Replied 07 May 2025

Yes. Booking the exchange difference under CWIP for a machine import is correct as per standard accounting practice. All costs incurred-including exchange rate differences up to the point the asset is ready for use-should be capitalized as part of CWIP. Once the asset is completed and put to use, the total cost (including exchange differences) is transferred from CWIP to the relevant asset account.

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kiran (accountant) (449 Points)
Replied 07 May 2025

Which accounting standards refer for exchange capitalised.

Dhirajlal Rambhia (SEO Sai Gr. Hosp.) (194161 Points)
Replied 07 May 2025

Review the specific terms of your import transaction and the applicability of paragraph 46A of AS 11. If the payment was made within a normal credit period and the machine was ready for use before the payment date, you should likely reclassify the exchange difference from CWIP to an exchange loss in your profit and loss statement.

Para 46 and 46A

The broad principle is that the exchange differences should be taken to the profit or loss statement, notwithstanding the exchange difference which arises on the revenue account or the capital account. However, the Union Government of India, vide its notification issued on March 31st, 2009, inserted the above-mentioned paragraphs in the AS 11 The Effects of Changes in Foreign Exchange Rates

The exchange differences which arises on the account of a depreciable asset isn’t required to be charged to the profit or loss statement and might be added or reduced from the cost of such asset. This addition should be depreciated together with the asset over the useful life of such depreciable asset.

The underlining conditions are that such asset should be a depreciable capital asset and they’ve to be represented in the Balance sheet in the Foreign currency terms and it should be designated as “Long-term Foreign currency monetary item”.

Megha S (14 Points)
Replied 07 May 2025

Yes, booking the exchange difference under CWIP (Capital Work in Progress) is correct in this case.

When you import machinery and the payment is made at a different exchange rate than the initial booking, the difference in exchange rates is considered part of the cost of acquiring the asset. Since the machine is still under installation or not yet in use, the exchange gain or loss should be recorded under CWIP.

Once the machine is ready for use, the CWIP balance, including the exchange difference, will be capitalized as part of the machine's cost.