2018•Journal of case studiesRequires access

Capitalization of Exchange Loss related to Borrowing cost

K.G.T.M Herath, K.K. Tilakasiri

Abstract

ABC Company has obtained a USD 30 million bank loan on 1 st May 2013 for the purpose of constructing a new building. This loan is directly attributable to the construction of the building and the loan term is five years bearing 6.27% interest rate. However LKR Loan interest rate prevails in the market is amounting to 14.25% which is higher than the FCBU Loan interest rate. The main reason for charging a low interest rate for the FCBU loan is the cost arising from exchange rate. The company has started to capitalize full exchange gain/loss arises from the FCBU Loan as it directly relates with the construction of the building.

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Key concepts: Loan, Term loan, Fixed interest rate loan, Capitalization, Interest rate, Non-conforming loan, Business, Cross-collateralization