Reinstatement of foreign debtors

This query is : Open

Querist : Anonymous

Querist : Anonymous (Querist)

28 July 2011 If normal debtors are reinstated at TT buying rate at year end, then whether debtors with closing credit balances should be revalued at TT selling rate?

Kindly clarify which rate is to be used for reinstatement of debtors with closing credit balances??

CA Sachin D Jain

CA Sachin D Jain (Expert)
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29 July 2011 Dear Author,

Closing credit balance of debtors imply we have received excess money as advance from our customers, which is our current liability as at the end of the year. This means that we need to buy foreign currency from the market / authorised dealers to make the payment to foreign debtors having credit balances. Hence, the rates to be used while conversion is buying rate of foreign currency from the market.

Querist : Anonymous

Querist : Anonymous (Querist)

29 July 2011 Dear Sir,

If we have received excess money as advance from customer, then where is the need to make payment to foreign debtors having credit balances???

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CA Sachin D Jain

CA Sachin D Jain (Expert)
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29 July 2011 Dear Author,

When preparing the balance sheet as at the end of the year, the monetary items are restated as at the rate of exchange prevailing as at the balance sheet. The basic concept behind this is that as they are monetary items, they should be recorded as their fair value (assuming that they are crystalised as at the balance sheet date). On the basis of this concept and logic, we reinstate all monetary items as if they are going to be received or paid as the closing exchange rate.

Querist : Anonymous

Querist : Anonymous (Querist)

29 July 2011 Sir,

Just wanted to know what would be the exchange rate applicable to reinstate Foreign debtors with Closing credit balances? Whether it should be the TT buying or Selling rate? And how could be it the buying rate of foreign currency from market as already the company has received advances from customers. So what would be the appropriate rate of exchange to reinstate the credit balances of foreign debtors at the financial year end?