Purchase booking in case of Import
This query is : Resolved
Querist : Anonymous
Querist :
Anonymous
(Querist)
08 January 2011
My client is booking purchase at the rate provided by CBEC for bill of entry for home consumption. which is wrong but how to explain him, and what would be right rate of exchange for booking purchase. any substaintial material to prove that wrong and to show right procedure?
please suggest
please suggest
09 January 2011
At what basis , you are saying the booking is wrong, You just show your basis to the client that this one is the correct basis.
Querist : Anonymous
Querist :
Anonymous
(Querist)
10 January 2011
Thnks...
Please Explain what should be the rate to book the purchase, as my knowledge as per AS-11, CBEC rate can not be taken, as that rate is for the whole month predeterminded,whereas AS-11 also suggest about "Average Rate" for a month which do not substaintially varies...
Please Explain what should be the rate to book the purchase, as my knowledge as per AS-11, CBEC rate can not be taken, as that rate is for the whole month predeterminded,whereas AS-11 also suggest about "Average Rate" for a month which do not substaintially varies...
10 August 2024
When booking purchases for imported goods, it's important to adhere to proper accounting standards and regulatory requirements. Here’s a detailed explanation and guidance on how to correctly book import purchases and explain the discrepancies:
### **Understanding the Correct Rate for Booking Import Purchases:**
#### **1. Accounting Standards: AS-11 (The effect of changes in foreign exchange rates):**
- **Historical Rate:**
- **AS-11** specifies that transactions in foreign currencies should be recorded at the exchange rate prevailing on the date of the transaction. For imports, this means you should use the exchange rate that was applicable on the date of the bill of entry for the home consumption of goods.
- **Rate for Purchase Booking:**
- **Transaction Date Rate:** This is the rate prevailing on the date of the transaction, i.e., the date of the bill of entry or the date when the goods are imported.
- **Average Rate:** If the exchange rate does not fluctuate significantly, an average rate for the period might be used for convenience, but this should still be reconciled with the actual transaction rate.
#### **2. CBEC Rate vs. Actual Transaction Rate:**
- **CBEC Rate:**
- The rate published by CBEC (Central Board of Excise and Customs) is typically used for determining customs duties. It is a predetermined rate for a period and might not reflect the actual rate of exchange on the specific transaction date.
- **Actual Rate:**
- **AS-11** suggests using the actual rate on the date of transaction. Therefore, you should use the exchange rate on the date of the bill of entry, not the CBEC rate.
#### **3. Correct Procedure for Booking Import Purchases:**
1. **Determine the Transaction Date Rate:**
- Use the exchange rate applicable on the date of the bill of entry or the date when the import transaction occurred.
2. **Record the Purchase:**
- **Debit** the Purchase Account with the amount converted at the transaction rate.
- **Credit** the Accounts Payable or Supplier Account.
3. **Currency Conversion:**
- If you are using a different rate for conversion (such as the average rate), ensure it is consistently applied and reconciled with actual rates when necessary.
4. **Accounting for Exchange Differences:**
- If there are exchange rate differences, these should be accounted for in accordance with AS-11. Any gain or loss due to exchange rate fluctuations should be recognized in the financial statements.
#### **4. Explaining the Correct Procedure to Your Client:**
- **Reference to AS-11:**
- Explain that according to **AS-11**, the correct rate to use is the rate prevailing on the date of the transaction, which in the case of imports, is typically the date of the bill of entry.
- **Avoid Using CBEC Rate for Booking Purchases:**
- CBEC rates are meant for customs duty purposes and might not reflect the actual exchange rate for the transaction. Using the CBEC rate could result in inaccuracies in financial reporting and may not comply with accounting standards.
- **Use of Average Rate:**
- If your client prefers using an average rate due to minimal fluctuation, ensure this rate is reconciled with actual transaction rates and is consistently applied.
- **Documentation and Compliance:**
- Provide documentation supporting the transaction rate used, such as the bill of entry, and ensure compliance with **AS-11** for accurate financial reporting.
### **Supporting Material:**
1. **Accounting Standard-11 (AS-11):**
- Refer to the official Accounting Standard for guidance on foreign currency transactions and the correct rate to use.
2. **Financial Statements:**
- Provide examples or samples of financial statements where the actual transaction rate was used correctly.
3. **Circulars and Notifications:**
- Refer to any circulars or notifications from accounting bodies or tax authorities that provide clarification on the correct rate to use for import transactions.
By adhering to these guidelines, you ensure accurate financial reporting and compliance with accounting standards.
### **Understanding the Correct Rate for Booking Import Purchases:**
#### **1. Accounting Standards: AS-11 (The effect of changes in foreign exchange rates):**
- **Historical Rate:**
- **AS-11** specifies that transactions in foreign currencies should be recorded at the exchange rate prevailing on the date of the transaction. For imports, this means you should use the exchange rate that was applicable on the date of the bill of entry for the home consumption of goods.
- **Rate for Purchase Booking:**
- **Transaction Date Rate:** This is the rate prevailing on the date of the transaction, i.e., the date of the bill of entry or the date when the goods are imported.
- **Average Rate:** If the exchange rate does not fluctuate significantly, an average rate for the period might be used for convenience, but this should still be reconciled with the actual transaction rate.
#### **2. CBEC Rate vs. Actual Transaction Rate:**
- **CBEC Rate:**
- The rate published by CBEC (Central Board of Excise and Customs) is typically used for determining customs duties. It is a predetermined rate for a period and might not reflect the actual rate of exchange on the specific transaction date.
- **Actual Rate:**
- **AS-11** suggests using the actual rate on the date of transaction. Therefore, you should use the exchange rate on the date of the bill of entry, not the CBEC rate.
#### **3. Correct Procedure for Booking Import Purchases:**
1. **Determine the Transaction Date Rate:**
- Use the exchange rate applicable on the date of the bill of entry or the date when the import transaction occurred.
2. **Record the Purchase:**
- **Debit** the Purchase Account with the amount converted at the transaction rate.
- **Credit** the Accounts Payable or Supplier Account.
3. **Currency Conversion:**
- If you are using a different rate for conversion (such as the average rate), ensure it is consistently applied and reconciled with actual rates when necessary.
4. **Accounting for Exchange Differences:**
- If there are exchange rate differences, these should be accounted for in accordance with AS-11. Any gain or loss due to exchange rate fluctuations should be recognized in the financial statements.
#### **4. Explaining the Correct Procedure to Your Client:**
- **Reference to AS-11:**
- Explain that according to **AS-11**, the correct rate to use is the rate prevailing on the date of the transaction, which in the case of imports, is typically the date of the bill of entry.
- **Avoid Using CBEC Rate for Booking Purchases:**
- CBEC rates are meant for customs duty purposes and might not reflect the actual exchange rate for the transaction. Using the CBEC rate could result in inaccuracies in financial reporting and may not comply with accounting standards.
- **Use of Average Rate:**
- If your client prefers using an average rate due to minimal fluctuation, ensure this rate is reconciled with actual transaction rates and is consistently applied.
- **Documentation and Compliance:**
- Provide documentation supporting the transaction rate used, such as the bill of entry, and ensure compliance with **AS-11** for accurate financial reporting.
### **Supporting Material:**
1. **Accounting Standard-11 (AS-11):**
- Refer to the official Accounting Standard for guidance on foreign currency transactions and the correct rate to use.
2. **Financial Statements:**
- Provide examples or samples of financial statements where the actual transaction rate was used correctly.
3. **Circulars and Notifications:**
- Refer to any circulars or notifications from accounting bodies or tax authorities that provide clarification on the correct rate to use for import transactions.
By adhering to these guidelines, you ensure accurate financial reporting and compliance with accounting standards.
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