Need to know how to settle the exchange rate loss. A firm has closed its year 2019 and published. there were two entries in the ledger. one with a 4.0 exchange rate and the other was published with a mistake rate, here the exchange rate was 3.0. How can I fill this gap of 1.0. Because if I convert the total, (Ex. Total in system currency is 500Drhams (Voucher 1 - 200*4 and Voucher 2- 300*3) and in Ledger currency(USD) 1700. Ideally, 500 * 4 =2000 should have been the total. Please help as this difference of 300 would be there always and carried ahead. I want to rectifiy this without editing 2019 data.
07 July 2024
To address the exchange rate loss without editing the 2019 data directly, you can follow these steps:
1. **Create a Provision for Exchange Rate Difference:** - First, create a provision entry in your books to account for the exchange rate difference. This entry should reflect the adjustment needed to correct the discrepancy between the actual exchange rate and the published rate.
2. **Adjustment Entry:** - Prepare a journal entry to adjust the accounts affected by the exchange rate difference. For example: - Debit: Exchange Rate Loss (an expense account or a separate provision account created for this purpose) - Credit: Exchange Rate Gain/Loss Reserve (a balance sheet account used to track such adjustments)
3. **Recording the Adjustment:** - Record the adjustment in the current financial year (2020 or later). This ensures that your 2019 financials remain unchanged, adhering to accounting principles.
4. **Financial Reporting:** - In your financial statements for the current year, disclose the provision made for the exchange rate difference in the notes to the financial statements. This transparency helps in explaining any adjustments made outside the period.
5. **Consult with an Accountant:** - If the exchange rate loss is substantial or has tax implications, consult with your accountant or tax advisor. They can provide guidance specific to your jurisdiction's accounting standards and regulations.
By creating a provision and recording the adjustment in the current financial year, you effectively rectify the exchange rate discrepancy without altering the closed financials of 2019. This approach maintains accuracy in your financial reporting while addressing the historical error in exchange rate application.
CAclubindia
