SEO Sai Gr. Hosp.
198427 Points
Joined July 2016
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”.