Applicability of depreciation charged off to P/L

[Shashidhar P]

Hi, I have a query with respect of tax audit relating to Capitalisation of exchange difference to Fixed assets as per AS 11 Notification issued by the Govt. in March 2009. My query is for tax audit purpose, whether capitalisation of exchange difference for unrealised loans availed for purchase of Fixed assets should be added to Fixed assets and provide depreciation on that or should be charged off to P&L.

[Rama Krishana]

Considering, Unrealized loans = NPA (Non performing assets) - since you have purchased fixed assets and obtained loan, it is not possible to assume that in the hands of borrower unless and until the same is written off, how one can assume that it is unrealised loan? Once it is written off, it looses the status of loan? Therefore, you are requested to elaborate the query in detail the reference and relevant of unrealized loan.

[Ajay Garg]

In respect of AS-11 if any loan has been taken in foreign currency, than the Difference in exchange rate shall be added into fixed assets and depreciation shall be charged on the whole amount of fixed assets. In my point off view if it is unrealised loans availed to purchase of fixed assets is not received hence no question shall be arise for difference in foreign exchange. As i understand the query. In this query the means of unrealised of loan. Is it sanction but not used for assets or otherwise.

AI Summary

Exchange difference capitalization: add foreign-currency exchange movements to asset cost and depreciate when funds used for acquisition. The issue is whether foreign exchange differences on foreign-currency borrowings used to acquire fixed assets are to be capitalised into the asset cost and depreciated or charged to profit and loss. One commentator requests clarification on the term 'unrealised loans,' suggesting implications if a loan is written off or only sanctioned but unused. Another applies AS 11: exchange differences related to loans taken in foreign currency for asset purchase should be added to the fixed asset cost and depreciation charged on the total amount; if funds were not received or applied, no exchange difference for capitalisation arises.