Foreign currency transaction

This query is : Resolved

Aadish Jain (Querist)
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18 October 2011 X Ltd. purchased a machinery from america on june 15 for 1000$. the machine will start to put to use on aug.15. the payment will be due on dec.15. balacne sheet date is sept 30.
foreign exchange rate is
on june 15 $1= rs. 45
on aug 15 $1 = rs. 47
on sept. 30 $1= rs. 49
on dec. 15 $1 = rs. 51
i want to know the accounting entries made in the books of X ltd.
plz suggest the ans.

Sijo Philip

Sijo Philip (Expert)
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19 October 2011 Initial capitalisation to be made at the rate applicable for the date of transaction, ie, June 15.

Machinery Account Dr 45000
To Creditor 45000

September 30 rate has to be used for conversion of creditors balance:

Foreign Exchange difference Dr 4000
To Creditor Account 4000

December 30 rate to be used for payment:

Creditor Account Dr 49000
Foreign Exchange difference Dr 2000
To Bank 51000