Accounting for exchange gain/loss
This query is : Resolved
Querist : Anonymous
Querist :
Anonymous
(Querist)
18 November 2014
32 A Pvt. Ltd. Co. purchased shares of 1 Euro each of a
foreign company.
Later on, it also gave loan to foreign Co.
As on 31/03/14, balance sheet of Pvt. Ltd. Co.
shown in its balance sheet shares of Foreign
company as its investment & loan under head
Loans
Query is
1 Whether the investment in shares of 1 Euro Each
has to be given effect for foreign exchange rates
fluctuations.
2 whether the loan given has to be given effect for foreign exchange rates
fluctuations.
3 if yes, what entry will be passed.
foreign company.
Later on, it also gave loan to foreign Co.
As on 31/03/14, balance sheet of Pvt. Ltd. Co.
shown in its balance sheet shares of Foreign
company as its investment & loan under head
Loans
Query is
1 Whether the investment in shares of 1 Euro Each
has to be given effect for foreign exchange rates
fluctuations.
2 whether the loan given has to be given effect for foreign exchange rates
fluctuations.
3 if yes, what entry will be passed.
18 November 2014
Yes. it has to be given. Balance sheet items has to be booked at closing rate and difference will be forex gain/loss.
if there will be any difference, it will be foreign translation reserve.
if there will be any difference, it will be foreign translation reserve.
18 November 2014
As per AS11
(a) foreign currency monetary items should be reported using the closing rate. However, in certain circumstances, the closing rate may not reflect with reasonable accuracy the amount in
reporting currency that is likely to be realised from, or required to disburse, a foreign currency monetary item at the balance sheet date, e.g., where there are restrictions on remittances or
where the closing rate is unrealistic and it is not possible to effect an exchange of currencies at that rate at the balance sheet date. In such circumstances, the relevant monetary item should be reported in the reporting currency at the mount
which is likely to be realised from, or required to disburse, such item at the balance sheet date;
(b) non-monetary items which are carried in terms of historical cost denominated in a foreign currency should be reported using the exchange rate at the date of the transaction; and
(c) non-monetary items which are carried at fair value or other similar valuation denominated in a foreign currency should be reported using the exchange rates that existed when the values were determined.
For loan being monetary item you have to give effect to exchange rate variation at the end of the year.
For shares please see c above.
(a) foreign currency monetary items should be reported using the closing rate. However, in certain circumstances, the closing rate may not reflect with reasonable accuracy the amount in
reporting currency that is likely to be realised from, or required to disburse, a foreign currency monetary item at the balance sheet date, e.g., where there are restrictions on remittances or
where the closing rate is unrealistic and it is not possible to effect an exchange of currencies at that rate at the balance sheet date. In such circumstances, the relevant monetary item should be reported in the reporting currency at the mount
which is likely to be realised from, or required to disburse, such item at the balance sheet date;
(b) non-monetary items which are carried in terms of historical cost denominated in a foreign currency should be reported using the exchange rate at the date of the transaction; and
(c) non-monetary items which are carried at fair value or other similar valuation denominated in a foreign currency should be reported using the exchange rates that existed when the values were determined.
For loan being monetary item you have to give effect to exchange rate variation at the end of the year.
For shares please see c above.
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