Alfa Ltd. purchased an item of property, plant and equipment for US $50 lakh on 01.04.2023 and the same was fully financed by the foreign currency…

Exchange differences arising on restatement or repayment of liabilities incurred for the purpose of acquiring an item of property, plant and equipment should be adjusted in the carrying amount of the respective item of property, plant and equipment as Alfa Ltd. has exercised the option and it is long term foreign currency monetary item. Thus, the entire exchange loss due to variation of 20lakh on 31.03.2023 on payment of US $10 lakh, should be added to the carrying amount of an item of property, plant and equipment and not to the cost of goods sold. Further, depreciation on the unamortized depreciable amount should also be provided. Calculation of Exchange loss: Foreign currency loan (in ₹) = (50 lakh $ x 60) = 3,000 lakh Exchange loss on outstanding loan on 31.03.2024 = 40 lakh US $ x (62.00-60.00) = 80 lakh. So,80 lakh should also be added to cost of an item of property, plant and equipment with corresponding credit to outstanding loan in addition to 20 lakh on account of exchange loss on payment of instalment. The total cost of an item of property, plant and equipment to be increased by 100lakh. Total depreciation to be provided for the year 2023 - 2024 = 20% of (₹ 3,000 lakh + 100 lakh) = 620 lakh.