Accounting treatment of foreign bank account - as 11

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

30 January 2013 Hello All,

Pl help me out in following query.
We have one foreign bank account. nw from india we transferred $1000 to foreign bank, rate for that day was 53. we did accounting in rupees and balance sheet reflects amount of Rs. 53000 in foreign bank account. Now we spent $1000 for some expenses, rate for that day is Rs. 55. now in rupees the Foreign bank showing negative balance of Rs. 2000. Pl note that this is not on account of fluctuation. is there any mistake. what is the solution.

Pl guide..

CA. Subhash Dangi

CA. Subhash Dangi (Expert)
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30 January 2013 Fluctuation in Foreign Currency exchange rate shall be disclosed appropriately in books of accounts as per AS - 11.
In the your case, the difference of Rs.2000 pertains to Exchange loss on account of foreign exchange rate fluctuation.

Debit Rs.2000/- as Foreign Exchange Loss account by crediting Foreign bank account while booking expenses of $1000.

Querist : Anonymous

Querist : Anonymous (Querist)

30 January 2013 Hi subhash,

thanx for reply. but really don't think its foreign exchange loss. as all balance sheet item should be restate at closing rate. now there is no balance in bank account at the closing date, so there will not be any reinstatement.so how entry shall be passed through bank account to square off the account.

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CA. Subhash Dangi

CA. Subhash Dangi (Expert)
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30 January 2013 It in not the case of reinstatement of Forex liability as there is no balance in bank account.
The point of view is that, there should be some exchange gain or loss on spending $1000 for some expenses thro the foreign bank account due to exchange rate difference i.e, exchange gain or loss Rs.2000[$1000 x 2(55-53)]
The entry should have been booked at the time of actual expenditure.

Now to square off the bank balance in current year if books are closed for previous year, the entry should be:

Debit: Foreign Bank Account Rs.2000
Credit:Prior period Expns (Exchange gain or loss) Rs.2000

Querist : Anonymous

Querist : Anonymous (Querist)

30 January 2013 the expesnes has got nothing to do with rate 53. rate 53 was suppose in april. in august this expenses came out and rate was 55 and same day it was paid. We have to book expenses at 55 and pay it out at 55. There is no gain or loss in this transaction nor this expenses has any connection with rate 53 of april.

CA. Subhash Dangi

CA. Subhash Dangi (Expert)
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30 January 2013 As the amount transferred and expenditure done in foreign currency, there is no impact while transferring $1000 from one bank to foreign bank account.
However, the difference of Rs.2000/- arises at the time of expenses of $1000 when rate was Rs.55.

Since the accounting entries are stating in Indian Rupees, the difference of Rs.2000/- some where has to find a place in accounts.

My view is that, it is forex rate difference and this question emanates only when expenses incurred in foreign currency and stated in Indian rupees.