TaxTMI 
TaxTMI 
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.
Applicability of depreciation charged off to P/L
10 Sep 2009 
2 Replies 
1381 Views Asked by
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. (AI Summary)
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. (AI Summary)