AS 10

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CA Pooja Tahilramani (Querist)
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09 March 2011 As per AS 10, do we have to adjust foreign exchange fluctuation loss/gain arising on payment made to creditor of Fixed Asset against its Historical Cost or will it be charged to P&L?

CA Ravi Sisodia

CA Ravi Sisodia (Expert)
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09 March 2011 According to AS-11 exchange difference woll be debited/credited to p&l a/c.

but in case of non-integral foreign operation, exchange difference will be transfer in 'foreign currency translation reserve' a/c.

CA Pooja Tahilramani

CA Pooja Tahilramani (Querist)
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09 March 2011 AS 10 mentions that the cost of a fixed asset may undergo changes subsequent to its acquisition on account of foreign exchange fluctuations. Will this cover exchange fluctuation loss/gain arising on payment made to creditor of Fixed Asset?

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Asha Kanta Sharma

Asha Kanta Sharma

(Expert)
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14 July 2024 Under Accounting Standard (AS) 10 - Property, Plant and Equipment, the treatment of foreign exchange fluctuation loss or gain related to payments made to creditors of fixed assets depends on whether the foreign exchange transactions are integral or non-integral to the operations of the entity.

### Integral Foreign Operations:

1. **Foreign Exchange Fluctuations:**
- For transactions denominated in a foreign currency that are integral to the normal operations of the entity (e.g., import of machinery for use in operations), any exchange difference arising on settlement (payment) or translation is generally recognized in the Profit and Loss Account (P&L).

2. **Treatment under AS 10:**
- AS 10 allows for the recognition of exchange differences arising on foreign currency transactions (including payments to foreign creditors) as part of the cost of the related fixed asset. These exchange differences are added to or deducted from the cost of the fixed asset and are therefore capitalized.

### Non-Integral Foreign Operations:

1. **Foreign Exchange Fluctuations:**
- For transactions that are not integral to the normal operations (e.g., acquisition of a fixed asset for investment purposes), exchange differences are usually recognized in the P&L Account as they arise.

2. **Treatment under AS 10:**
- AS 10 recognizes that the cost of a fixed asset may include foreign exchange fluctuations if they are directly attributable to the acquisition or construction of the asset. This ensures that the cost of the asset reflects the expenditure incurred in the functional currency.

### Specific Scenario - Payments to Creditor of Fixed Asset:

- If the payment to a foreign creditor is directly related to the acquisition of a fixed asset (integral foreign operation), any exchange difference arising on settlement would typically be added to or deducted from the historical cost of the fixed asset. This adjustment ensures that the cost of the asset reflects the actual expenditure incurred in the entity's functional currency.

- If the payment is for a non-integral foreign operation (e.g., acquisition of a fixed asset for investment purposes), the exchange difference would generally be recognized in the P&L Account.

### Conclusion:

In summary, under AS 10, foreign exchange fluctuation losses or gains arising on payments made to creditors of fixed assets are typically adjusted against the historical cost of the fixed asset if the foreign currency transaction is integral to the operations of the entity. For non-integral foreign operations, these fluctuations are recognized in the P&L Account. The key is to distinguish between integral and non-integral foreign operations and apply the appropriate accounting treatment accordingly to ensure accurate reporting of the fixed asset's cost and financial performance.