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15 December 2008 2,427 views No Comment
Hi

 

Please give me your opinion on forex loss on Assets. Do you capitalize it or do expense it to the foreign loss

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dear strauss,,
 
in the normal course of business, an account namely “profit/loss on currency exchange rate” is opened under the caption of “share capital & reserves”.
 
for more understanding, plz mention the company business.
 
Regards,
amamd

dear strauss,
 
it will be precessed through income statement, it will not be capitalized. . . today, most of softwares provide previlege of mutilple currency. . .
 
for your understanding, you should present it through profit & loss statement under the head “gain/loss on currency exchange”.
 
Regards,
ammad
 
Danella,
there are two different issues around foreign currency:
1) Translation adjustements on consolidation while translating the balance sheet from the operating to the functional currency. These differences are accounted for under translation adjustments directly through equity as these are basically unrealized gains/losses.
2) Foreign exchange gains or losses on transactions. When recognizing assets, all costs directly attributable to that asset should be capitalized. That would include foreign currency losses. The same method applies for fixed as well as financial assets.
 
I hope that helps,
 
Jeroen

As per A S 11. we cannot capitalise the forex loss on fixed asset but we have certain criteria to capitalise.


dear Danella,
 
plz explain the situation in detail you are encountering.
 
thanx & regards,
ammad


Any expenditure directly linked to the formation of assets is reflected in the cost of asset……
when added to cost of asset they become eligible for depriciation.any foriegn exchange on a capital transaction is a capital loss and hence by any stretch of imagination cannot be charged to Revenue….leave alone any standard.
Regards
R.Veeraraghavan

Hi

We bought equipment- Specifically to upgrade our CORE   from a foreign supplier before our Financial Year-end. The equipment arrived at our warehouse before year-end, because of some reason we could not arrive the equipment on our system. But the transaction  were recognize at the rate as at year-end.  We didn’t hedge the transaction.

The payment were due in October which is after year-end. The South African Rand were much weaker against the USD, which means our forex loss in the new year is extremely high. The liability relating to this assets is much higher than at year-end.

 

Hope this explain a bit more

 

Danella

 


Dear,
 
such currency difference will be incorporatred as increase in the value of asset and will capitalized over the life of asset.
 
Regards,
ammad


Which means the asset became more expensive and it should be capitalized for the higher amount (intial cost + forex costs)

Dear Danella

The assets should be capitalized when it is received and put to use.
The foreign currency will be transalated based on the bill of lading
date. Assets should be debited and liability should be credited. Later
on while making the payment whatever loss or profit on transaltion
arises should be expensed/ income and not to be capitalized. The
payment has nothing to do with assets capitalization.

Thanks

Hemant


Danella,

I double checked after the comment below, and I agree with Hemant. IAS 21.28 explicitly states that gains/losses on forex should be recognized in P&L. The forex is not attributable to the asset but to the financial liability.

My apologies for my earlier answer.

Regards,

Jeroen


As far as AS-11 and Companies Act 1956 is concerned there is contradictry between these two. AS-11 suggest for charging it in P&L where Act permits to adjust it with value of Assets. But section 211 of Act says that books of accounts must be kept as per accounting standards. So, in my opinion it should be charged against profit.

–
With regards,
Sharvan

 

 

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