11 April 2012
if advance given for purchased of fixed asset was in foreign currency when US$ was RS 50. But when asset arrived in india the value of US$ was RS. 55 resulting into forex gain . What shall be the accounting treatment .
15 July 2024
The treatment of foreign exchange gain or loss in the scenario you described would depend on the nature of the transaction and the applicable accounting standards (AS-10, AS-11, AS-16).
### Accounting Treatment:
1. **Advance Payment in Foreign Currency (USD at ₹50):** - When the advance payment was made in USD at an exchange rate of ₹50, the accounting entry would typically debit the Fixed Asset account and credit the Bank account for the equivalent amount in INR based on the exchange rate at that time.
**Example:** - Advance payment of = ₹5,00,000
2. **Exchange Rate Change (USD at ₹55):** - If there is a subsequent change in the exchange rate by the time the asset arrives in India (let's say ₹55/$), there would be a difference between the amount paid initially and the equivalent amount based on the new exchange rate.
**Example:** - At ₹55/$, $10,000 would be ₹5,50,000
3. **Accounting Treatment for Forex Gain/Loss:** - According to AS-11 (The Effects of Changes in Foreign Exchange Rates): - **Forex Gain:** If the value of USD has appreciated relative to INR (₹55/$ compared to ₹50/$), there will be a forex gain. - **Forex Loss:** If the value of USD has depreciated relative to INR, there would be a forex loss.
- The forex gain or loss is typically recognized in the Profit and Loss account, as per AS-11 guidelines. However, AS-10 (Accounting for Fixed Assets) and AS-16 (Accounting for Borrowing Costs) also have implications depending on whether the asset is considered a fixed asset and how borrowing costs (if any) related to its acquisition are treated.
### Journal Entry for Forex Gain (assuming gain due to exchange rate increase): - **Forex Gain A/c Dr** - **To Fixed Asset A/c**
### Note: - Ensure that the accounting treatment complies with both AS-11 for forex gain/loss recognition and AS-10 or AS-16 for fixed asset accounting or borrowing cost capitalization, respectively. - The exact journal entries and treatment may vary based on specific circumstances and any additional factors involved in the transaction.
It's recommended to consult with a qualified accountant or financial advisor to ensure compliance with all applicable accounting standards and to accurately reflect the financial impact of foreign exchange fluctuations on your financial statements.
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