Capitalisation of exchange difference on 100% advance payment made for purchase of fixed assets

Avatar 37a3bd7bc7328f0ead2c0f6f635dddf60615e676e6b4ddf964144012e529de45 ankit agarwal asked about 4 years ago

As per AS 11 exchange differences on reporting of long-term foreign currency loans is accounted by addition to the cost of the assets so far it relates to depreciable capital assets and is depreciated over the remaining useful life of such assets. Whether exchange difference on 100% advance payment made for purchase of fixed assets be capitalised?

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Open uri20170510 32134 1ue0f38?1494421710 rohit agarwal answered about 4 years ago

Dear Ankit, **Reference to Accounting Standard (AS) - 10 - Accounting for fixed assets** The cost of an item of fixed asset comprises its purchase price, including import duties and other non-refundable taxes or levies and any directly attributable cost of bringing the asset to its working condition for its intended use; any trade discounts and rebates are deducted in arriving at the purchase price. **Reference to Accounting Standard (AS) - 11 - The Effects of Changes in Foreign Exchange Rates** A foreign currency transaction is a transaction which is denominated in or requires settlement in a foreign currency, including transactions arising when an enterprise acquires or disposes of assets, or incurs or settles liabilities, denominated in a foreign currency. The following options are available to recognise the date of transaction for sale • Date of invoice • Date of bill of lading • Date of shipment • Date on MRN etc. Where the payment is made in advance there is no question of endorsement of documents by the banker and date of transaction again is to be decided on the basis of intention of parties. Since, In our case, since 100% advance payment is made for purchase of capital goods, and there is no future liability to be settled, therefore, the transaction is complete on the date of transaction itself. Therefore, no exchange loss is to be recognised in books. Regards

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