Exchange Fluctuation impact while receipts in EEFC accounts
This query is : Resolved
01 August 2020
My query in on Exchange Difference :
Let's assume same scenarios with 2 different companies: say Company A & Company B
Scenario :
1) Exports goods worth USD 1,000 @ 70 rate.
2) Receive USD 1000 @ 75 rate from foreign customer
Company A has an INR current account. But Company B has USD EEFC account to receive foreign receipts.
Entry for no. 1) will be same for both companies:
Dr. Foreign Debtor 70,000
Cr. Export Sales 70,000
But there will be difference in Entry for no. 2)
when Company A receives USD 1,000 in INR current account, it receives Rs. 75,000. So, entry will be:
Dr. HDFC Bank current account 75,000
Cr. Foreign Debtor 70,000
Cr. Exchange Gain 5,000
However, Company B receives USD 1,000 in EEFC account. Though the USD to INR exchange rates are different during the time of export sale and receipt, but Company B billed USD 1,000 and it received USD 1,000 and in EEFC account. So, no exchange gain to account at that point of time.
Entry for receipt will be
Dr. HDFC Bank USD EEFC account 70,000
Cr. Foreign Debtor 70,000
Now an additional transaction is when the funds are transferred from EEFC USD account to INR current account. Let's say USD 1,000 transferred to INR current account when Exchange Rate is 77. So, entry will
Dr. HDFC INR current account 77,000
Cr. HDFC EEFC USD account 70,000
Cr. Exchange Gain 7,000
Is this correct?
I discussed this with our Auditor. He said that Exchange difference to be accounted while receipt of funds in EEFC account. Though Company B have received same USD quantity, but INR value is different.
So, he says that Exchange fluctuation will happen only at the time of receipt of USD and no exchange fluctuation impact when transfer funds from USD EEFC account to INR current account.
Let's assume same scenarios with 2 different companies: say Company A & Company B
Scenario :
1) Exports goods worth USD 1,000 @ 70 rate.
2) Receive USD 1000 @ 75 rate from foreign customer
Company A has an INR current account. But Company B has USD EEFC account to receive foreign receipts.
Entry for no. 1) will be same for both companies:
Dr. Foreign Debtor 70,000
Cr. Export Sales 70,000
But there will be difference in Entry for no. 2)
when Company A receives USD 1,000 in INR current account, it receives Rs. 75,000. So, entry will be:
Dr. HDFC Bank current account 75,000
Cr. Foreign Debtor 70,000
Cr. Exchange Gain 5,000
However, Company B receives USD 1,000 in EEFC account. Though the USD to INR exchange rates are different during the time of export sale and receipt, but Company B billed USD 1,000 and it received USD 1,000 and in EEFC account. So, no exchange gain to account at that point of time.
Entry for receipt will be
Dr. HDFC Bank USD EEFC account 70,000
Cr. Foreign Debtor 70,000
Now an additional transaction is when the funds are transferred from EEFC USD account to INR current account. Let's say USD 1,000 transferred to INR current account when Exchange Rate is 77. So, entry will
Dr. HDFC INR current account 77,000
Cr. HDFC EEFC USD account 70,000
Cr. Exchange Gain 7,000
Is this correct?
I discussed this with our Auditor. He said that Exchange difference to be accounted while receipt of funds in EEFC account. Though Company B have received same USD quantity, but INR value is different.
So, he says that Exchange fluctuation will happen only at the time of receipt of USD and no exchange fluctuation impact when transfer funds from USD EEFC account to INR current account.
01 August 2020
Dear Vikas
All the transactions in the EEFC Account whether receipt or payment should be recorded at the exchange rate on the date of the transaction at a rate approximates the actual rate on the date of transaction. It means that the opinion of the auditor about recording exchange gain on the date of the transaction was correct.
And also on the date of transferring funds from EEFC Account to current account the further exchange gain of Rs. 2000 will also be recorded.
All the transactions in the EEFC Account whether receipt or payment should be recorded at the exchange rate on the date of the transaction at a rate approximates the actual rate on the date of transaction. It means that the opinion of the auditor about recording exchange gain on the date of the transaction was correct.
And also on the date of transferring funds from EEFC Account to current account the further exchange gain of Rs. 2000 will also be recorded.
Message likes :
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03 August 2020
Dear Karan, thanks a lot for clarifying the same. Got the same opinion from a CA friend as well. With 3 similar opinions now, now I am sure about the exchange impact. Thanks for your efforts.
03 August 2020
Thanks a lot for your appreciation.
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