29 August 2017
XYZ Ltd. has taken a loan of USD 10,000 on April 1, 2016, for a specific project at an interest rate of 5% p.a., payable annually. On April 1, 2016, the exchange rate between the currencies was Rs. 50 per USD. The exchange rate, as at March 31, 2017, is Rs. 48 per USD. The corresponding amount could have been borrowed by XYZ Ltd. in local currency at an interest rate of 11 per cent per annum as on April 1, 2017.
What will be the treatment of foreign exchange gain & what amount should be recorded as interest in the books of accounts as interest.
29 August 2017
interest in foreign currency =10000*48*5%=24000 exchange differnce=10000(50-48)=20000 interest in indian currency=1000*50*11%=55000 since the interest differntial between foreign and local borrowing more than exchange difference entire exchange differnce of 20000+24000 is considered as borrowing cost as per AS-16 and there is no exchange differntial to be dealt as per AS-11
29 August 2017
Thank u sir for ur reply... But in the above ques inspite of exchange difference *gain* of RS. 20000.. We need to book Rs 54000 as borrowing cost???
31 August 2017
First of all very sorry that I gave a wrong answer since there is exchange gain the entire gains are transfered to p&l and no adjustment to be done on Borrowing costs borrowing cost to be capitalised remains at Rs 24000
CAclubindia
