Dear Sir,
Can you please help me understand one point -
IAS 23R requires capitalisation of foreign exchange differences (whether they are gains or losses) relating to borrowings to the extent that they are regarded as an adjustment to interest costs.
When a company has loss from foreign exchange, it will increase (Dr) interest cost capitalised in SFP and decrease (Cr) exchange loss recognised in P/L.
When a company has gain from foreign exchange, how it will record this? Will it decrease (Cr) interest cost capitalised in SFP and decrease (Dr) exchange gain recognised in P/L or is there any other way to record this??? (I can not understand this).
Thank you very much for your help.
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Capitalisation of foreign exchange differences
3y ago#1The interest cost in the P and L would normally include (1) interest and (2) XD on loans.
Interest normally Dr P&L Cr Cash
And XD normally Dr P&L Cr Loan (or vice versa)
So whatever the total interest cost is should be added to the cost of the qualifying asset. Dr PPE instead of Dr P&L
I'd be surprised if they examined this. :)
Thank you very much, Sir
If interest accrued is 5.000 CU and XD on loan is 5.100 CU, then:
Dr Interest P/L - 5.000 CU
Cr Cash - 5.000 CU
Dr Loan - 5.100 CU
Cr XD on loan P/L - 5.100 CU
What will be the amount of total interest cost to be added to the cost of the Q/A? Will it be nil?
I mean XD on loan may reduce total interest cost capitalisable max to nil, am I right?
Please help me understand this, Sir.
Thank you a lot.
3y ago#3Never thought about that. :)
I suppose XD could reduce the interest to nil. Perhaps even below nil.
Interesting, but I wouldn't stress about it for the exam. If it came up I would go for minus 100. If it came up in life though I would have to take advice.
:)
Thank you very much Sir
3y ago#5:)
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