Foreign exchange fluctuations

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prasad naib (Querist)
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24 August 2013 Dear Sir
I have query regarding Foreign Exchange Fluctuations Arising Through Amounts Payable To Suppliers ( Creditors ). e.g. We Have imported certain machines From Supplier Of China which are to be capitalised . The Cost of machines is USD 10000 , on the date import the conversion rate of indian currency is Rs. 54/- . The Purchase is booked accordingly ( 10000*54) For Rs.540000/-. Now on the date of Payment the USD rate is Rs.58/- . Means we have to Pay Rs.580000/- ( USD 10000*58 ) . Now my question is whether this loss of Rs.40000/- ( 10000*54 (-) 10000*58 ) should be assigned to the cost of acquisition of Fixed Asset Or should be shown in P & L a/c.
your guidance in this regard will be highly appreciated

V K Bajaj

V K Bajaj (Expert)
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25 August 2013 Please create a account named as FLUCTUATION IN CURRENCY RATES and debit Rs. 40000 to this account. This much amount is you expenses (PL account) and would not form a part of ASSETS.

The concept is that the cost of assets are taken on the date of acquisition irrespective to the fact whether the payment is made advance or after.