21 January 2009
If i have debtors outstanding is USD 1000 and i have also hedged USD to be sold are 500 USD than what should i do as on closing regarding reinstatment of debtors i.e. i should restate total 1000 USD debtors or only unhedged portion should be restated.
14 July 2024
In the context of Accounting Standard (AS) 11 - The Effects of Changes in Foreign Exchange Rates, when you have debtors outstanding in a foreign currency (USD 1000) and you have also entered into a hedge to sell a portion of those USD (500 USD), you need to consider how to account for these transactions and their impact on your financial statements.
### Guidance on Accounting Treatment:
1. **Hedging Relationship:** - Determine the nature of your hedge: whether it qualifies as a cash flow hedge or another type of hedge under AS 11. Cash flow hedges typically hedge the exposure to variability in cash flows that are attributable to a particular risk associated with a recognized asset or liability.
2. **Restatement of Debtors:** - Only the portion of debtors that is not hedged should be restated in your financial statements based on the closing exchange rate at the reporting date. The hedged portion (in this case, the 500 USD you have hedged) should be accounted for separately based on the hedge accounting principles.
3. **Entries for Hedged Debtors:** - If you are using hedge accounting: - Record the initial entry for the unhedged portion of debtors at the original exchange rate. - Recognize any gain or loss on the unhedged portion due to exchange rate fluctuations in the Profit and Loss Account (P&L). - The hedged portion should be accounted for under the hedge accounting rules, typically in a hedge reserve or similar account, until the underlying transaction affects the P&L.
4. **Documentation and Compliance:** - Ensure that your hedge is properly documented, and that you comply with all requirements of AS 11 regarding hedge accounting. This includes ensuring effectiveness testing and meeting all disclosure requirements in your financial statements.
### Sources for Guidance:
- **ICAI Guidance:** The Institute of Chartered Accountants of India (ICAI) provides guidance on AS 11 and hedge accounting principles. You can refer to ICAI's publications, accounting standards, and announcements for detailed guidance specific to your jurisdiction.
- **Professional Literature:** Accounting textbooks, journals, and professional websites often provide examples and detailed explanations of hedge accounting treatments under AS 11.
### Conclusion:
To address your specific situation, restate the debtors in USD based on the closing exchange rate, excluding the portion that has been effectively hedged. Ensure that you follow the principles of hedge accounting under AS 11, documenting your hedge relationships and complying with all reporting requirements to accurately reflect the financial impact in your company's financial statements. If you are unsure about the specific entries or treatment, consulting with a qualified accountant or financial advisor who is knowledgeable about AS 11 and hedge accounting would be advisable.
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