Capitalization rate

716 views 4 replies

 

Respected all Members,

 

A Company is providing speed boats to Govt. on hire basis. The co. has purchased 2 engines from Dubai from a party on which custom duty is levid [bill dated 20/11/2011 In (U.S. $) say $60,000, market rate $1= Rs.50.00]. The Company made the payment on 15/12/2011 at the rate prevailed in the market. (say $1= Rs.52.50). Custom rate $1= Rs.51.00

Kindly throw the light on the following

What amount to be capitalized-

a.    Amount prevailing on the bill date

b.    Custom rate

c.    Payment date

 

Kindly explain your answers considering the effect of the same for income tax purpose.

Replies (4)

1. (amount paid through bank + customs duty paid) should be capitalized. 

2. amount paid as per customs bill should be capitalized + diff should be debited in P/L account as "foreign exchange diff against imports"

follow any one method.

Thank you sir,

I find 2nd one more appropriate.

 

but sir, in accounting it will show that creditors have been  paid in excess or less as i'm not paying as per their bill.

please explain.

in 2nd method, excess payment will be debited under the head "forex diff against imports" for neutralization of accounts.

 

forex diff a/c dr 

to party a/c

Thank you Sir.

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