DIFFERENTIAL TREATMENT OF ASSETS IN USGAAP

The differential treatment of assets in USGAAP is on account of the following reasons: Treatment of Pre-Operative Expenses Rate fluctuation on imported assets. Interest on Capitalization of Assets

TREATMENT OF PRE-OPERATIVE EXPENSES

Preoperative Expenses relate to those expenses incurred prior to the date of capitalization of a unit. It reflects the CWIP (Capital Work-In-Progress). In PS, There is an account defined as CWIP A/c.

All expenditure prior to the date of capitalization would be debited to CWIP A/c and credited to Party A/c in AP.

On the date of Capitalization, another entry would be passed in AP. The A/P Asset Clearing Account would be debited with each individual asset and CWIP account be credited.

The issue in this is that the assets would flow to the AM module to all the books namely the Company, US gaap and Tax book. The problem in this is that Indian Gaap i.e. In Company and Tax Book Preoperative Expenses are capitalized on the proportionate basis to the actual assets (Preoperative Expenses are debited to Asset A/c). While in US Gaap Book those preoperative expenses are not capitalized (Debited to Respective Expense A/c.)The functionality should be such that the amount of assets and expenses should flow to the AM module for Company book but only asset cost should flow to the US gaap book. The expenses should be booked in AP and it should flow to the GL directly without entering AM module in US Gaap book.

Yash Suggestion:Pass two separate entries in AP module for Assets and expenses and then flow all the details to both the books. On the basis of the entry we identify that the entry is relating to expenses in AP and pass a J/V for the same.Nandhini suggestion :Define additional profiles in AM for all existing profiles . Attach the company book for the new profiles. All preoperative expense entries will flow to AM and will be capitalized in AM by adding to the cost of existing assets/ new asset.

TREATMENT OF RATE FLUCTUATION ON ACCOUNT OF PURCHASE OF IMPORTED ASSET.

Any amount arising on account on difference in rates between the GRN date and Payment date is capitalized in Indian SLM but it is expensed out in US GAAP.

When any asset purchased it is booked in APIMP in AP. At present they are using the date as booking date but ideally the date should be the GRN date. The import cash rate from Emacklai statement is picked up for converting the USD value into INR.

For the purpose of making the payment entry the rate entered is the rate supplied by the bank as on the date on which the entry is passed in bank statement.When the payment entry is passed in AP module, the system generates a line item called “ Realised/Unrealised Gain/Loss” with the difference in rate as on the date of payment and date of GRN. This value is reflected in INR.The system generates separate lines for Actuals, US GAAP and Tax Ledger. For the purpose of calculating US GAAP values, the system converts the INR value as on the date of payment into USD based on the Import Cash rate as on the date of payment.

The difference between the USD value as on the date of booking/GRN and USD value as on the date of payment is shown in GAAP book as the realised gain/loss.

INTEREST ON CAPITALISATION OF ASSETS

US Gaap capitalized the difference between notional interest (calculated on the avg. rate of interest on borrowed capital) on capital advances and Interest on Borrowed funds whereas there is no separate adjustment for the above in PS. Interest capitalization is done only in US Gaap books and not in Indian Gaap (Company & Tax Books).