Exchange difference (AS-11)

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CA Abhishek Singh (Querist)
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01 November 2010 hello friends,

one of our client located in SEZ is an exporter of jewellery.

for revaluation on 31/03 following entry is passed

Exchange Gain a/c---dr1000
To Foreign exchange difference a/c-1000

and again on 01/04 above entry is reversed

foreign exchange differene a/c-dr1000
To Exchange Gain a/c---1000

and when amount is realised from debtors debtors are credited @rate at which goods were sold to them.

Is the treatment allowed as per AS-11??

shakuntala chhangani

shakuntala chhangani (Expert)
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11 November 2010 Hi Abhishek, the entry given by u is not correct as iif u say it is exchange gain, it will be a credit item. the entries as per AS 11 are given below.
Initial recording :
Debtors A/c Dr. E.g 45
To Sales A/c 45 (spot rate / avg rate)
if the debt is settled during the year :
Bank A/c Dr. 46.5(rate on the date of receipt)
To Debtors A/c 45 (original Amt.)
Difference will be considered as ex. gain or loss (i.e 1.5 gain in the above case)and transferred to P/L A/c at the year end.
If the debt remains unpaid till the year end, it being the monetary item will be shown at closing rate and any difference between originally recorded amt. and year end closing rate amt will be shown as ex. Gain or loss in P/l A/C for which following entry is passed (say closing rate is 47)
Debtors A/c Dr. 2 (47-45)
To Ex. gain 2
Now the recorded amount is 47
In the next year, if it is settled at 46 then there will be ex loss of 1 which will be recorded as under :
Bank A/c Dr 46
Ex. Loss A/c Dr. 1
To Debtors A/c 47
Regards, CA Shakuntala Chhangani

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