The Chartered Accountant

DECEMBER 2008 958 THE CHARTERED ACCOUNTANT
ACCOUNTING
EXCHANGE DIFFERENCES:
SCHEDULE VI – AS 11
One of the recent controversies that has arisen is the accounting treatment
of Exchange Differences on foreign currency loans used to acquire fixed
assets from outside India in light of the Instruction contained in Schedule
VI to the Companies Act, 1956 vis-à-vis Accounting Standard (AS) 11- ‘The
Effects of Changes in Foreign Exchange Rates’ prescribed by the Central
Government under Companies (Accounting Standard) Rules, 2006 notified
vide notification dated 7th December, 2006.
The devaluation of the Indian rupee
on 6 th June, 1966, brought several
problems in its wake. One such
problem arose out of the consequential
enhancement in the liability of an Indian
businessman who had imported plant and
machinery from abroad the
consideration for which
had been fixed in terms
of a foreign currency and
which had not been fully
discharged by the date of
devaluation. Question arose
as to how this increase in
liability has to be (a) accounted
for in the books
of account of the business-
— CA. Kamlesh Vikamsey* &
CA. Dharini Shah**
(* The author is Past President of the
ICAI and President CAPA. **The author
is a member of the ICAI. They can be
reached at kamlesh@khimjikunverji.
com)
man, and (b) taken into account for purposes
of certain allowances available under the Income-tax
Act, 1961?
Soon after the currency devaluation of 1966,
the Institute of Chartered Accountants of India
(ICAI) issued a statement indicating the
manner in which the effects of
devaluation should be shown in
the accounts. It said:
“6.1 The council is of the
opinion that, to the extent to
which repayment obligations
in respect of fixed assets purchased
prior to devaluation
remain outstanding as on
6th June, 1966 (except those