CAF-2 · Chapter 8 · Question 12 of 15
A company acquired machinery using a foreign currency loan. Before the loan was fully repaid, the exchange rate increased, increasing the company's Rupee liability by Rs. 500,000. How is this exchange loss treated for tax purposes?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: B) B) Added to the cost of the depreciable asset in the year of occurrence.
Explanation
If a liability under a foreign currency loan increases or decreases due to exchange rate fluctuations, the difference shall be added to or deducted from the cost of the asset in the year of occurrence for the purposes of depreciation.
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