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Editorial Board on Accounts and Audit
  • Treatment of Exchange Loss on Fixed Assets

    by Chirag on Friday, August 16, 2019 at 10:05 PM

    Dear Sir, A company has purchased Stainless steel Plate for a Machine from a SELLER OF CHINA. This Plate is capitalised in Plant & Machinery under Fixed Assets. There is an Exchange Loss of Rs 60000 in this transaction. Query- Whether this loss should be debited to Fixed Assets A/c?? i.e. Entry should be -- Exchange loss Dr.60000 To Fixed Assets 60000 Pls clarify with reason sir.

    Replied byEditorial Board Monday, August 26, 2019 at 07:58 PM

    As per para 46A of AS 11, exchange difference arising from restatement or repayment of a long-term foreign currency monetary items insofar as they relate to acquisition of a depreciable fixed asset shall be either recorded in statement of profit and loss or shall be adjusted with the cost of the asset. When the asset is a non-depreciable asset, the exchange difference shall be either recorded in statement of profit and loss or in a separate account named ‘Foreign Currency Monetary Items Translation Difference Account (FCMITDA)’.
    In the queried case, if the steel plates are depreciable asset and the exchange loss is incurred on a long-term foreign currency monetary item related to acquisition of the steel plates then the company has the option to either record the loss of Rs. 60,000 in statement of profit and loss or adjust with the carrying amount of the plates.
    If the steel plates are non-depreciable asset and the exchange loss is incurred on long-term foreign currency monetary items related to acquisition of the steel plants then the company has an option to either record the loss of Rs. 60,000 in statement of profit and loss or in FCMITDA.
    Where the exchange loss of Rs. 60,000 is incurred in a short-term foreign currency monetary items, it shall be recorded in statement of profit and loss, irrespective of nature of the steel plates.
    Monetary items are defined in detail in AS 11.

 
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