Forward Cover

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

17 June 2011 Sir, I have a dought in my mind.
If a company is making export sale and recieves L/c from Buyer, L/c is discount from bank. Also a forward cover is taken.

I want to know the following:

1. How to make treatment of Forward Cover

2.At what value to Recognise The Sale Amount

3. Wheather the settlement of forward cover will have effect on sale value

4 Can we make following entry at the year end for forward cover gain

forward cover recievable dr.
to P&L A/c

Kumar

Kumar (Expert)
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19 June 2011 Sale value to be recognised at the exchange rate on the date of the transaction.

Settlement of forward cover will not effect the sale value. It is frozen at the transaction date rate.

The entry suggested by you is correct, provided the sale transaction has taken place and there is a debtor in the books. Debtor balance will also be restated in addition to the above entry.