How do we treat exchange rate differences relating to the acquisition of qualifying assets

Question: Explain the ‘qualifying asset' and how do we treat exchange rate differences relating to the acquisition of qualifying assets? Compare and contrast this with the treatment for assets that are not qualifying assets?

ANSWER:
Generally, assets are classified as qualifying and non-qualifying assets. Qualifying assets are assets that take a specific amount of time to prepare to be used in the future, whereas there is no time requirement for the non-qualifying asset. Non-qualifying assets can be referred to as those assets which do not take a certain period of time to get themselves ready for their intended use. It is noticed that many companies, incur expenses to purchase assets from foreign countries for their business. In those circumstances, the companies are entitled to pay the amount to the foreign seller in foreign currency. In case of foreign exchange, it is noticed that the rate of foreign currency is very fluctuating; therefore accounting standards has provided a list of situation, in regards to the treatment of these exchange differences. However, it is observed that the difference in the exchange rate differs for both qualifying assets and non-qualifying assets. In the case of a non-qualifying asset, these exchange rate differences are treated as an expense or an income, whereas in the case of the qualifying asset it is capitalized to the overall cost of the qualifying asset. However, it is observed that these expenses are recorded in the financial year when these exchange differences arise (Haija et al., 2021). It is also noted that exchange differences of those assets are capitalized which would as help would contribute to benefitting the company.A qualifying asset is an asset that requires some investment to prepare for its planned use or deal. That could be property, plant, and gear and speculation property during the development time frame, elusive assets during the advancement time frame, or "specially made" inventories.

Two sorts of assets that would somehow or another be qualifying assets are barred from the extension

1. qualifying assets estimated at a reasonable worth, for example, natural assets represented under Agriculture.

2. inventories that are made, or in any case delivered, in enormous amounts on a dull premise and that take a considerable period to prepare available to be purchased

Some of the examples of qualifying assets are as follows:
• Buildings in construction
• Machinery in work in progress
• Patents under development

Related:

Explain the typical expenses recognised by a lease

What costs should be included in cost of inventory

Explain the qualifying asset

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