11 May 2010
SIR/MADAM, ONE OF MY CA's CLIENT HAS BUSINESS OF EXPORT. when we make bill on sale , we enter an average rate for all sales entry into books of accounts.
customer a/c Dr. ( with average rate,let rs.55) To Sales a/c
but when party outside india gives payment , then it goes into "Euro A/c" in SBI. we pass an entry-
Euro a/c Dr. (with rate on which amount come into Euro a/c, let Rs. 56) To Customer A/c
after some days, when rate of Euro is higher,then we convert it into indian rs. and pass an entry-
HDFC BANK A/c Dr. (with rate of conversion, let Rs. 60) To Euro A/c
my question are - 1. what is the treatment of difference between Rs56 & Rs. 55? 2. what is the treatment of difference between rs. 60 & Rs.56?
as per my opinion, difference of Rs 1(56-55) will be transferred to P&L A/c and difference of Rs 4 (60-56) will be treated as Capital Gain or exchange difference.
11 May 2010
As per AS-11, initial recognition should be on the date of transaction (or Avg Rate - which is OK in your case).
Any difference, in settlement has to be treated as 'Exchange Gain/(Loss" and transfer to P&L A/c. Settlement means -conversion into 'reporting currency' -i.e INR. So, till date of converting into Rs, whatever difference should be treated as 'Exchange Gain/Loss' & transfer to P&L.
In your case, Rs. 5 (1+4) will be Exchange Gain/(Loss) and to transfer to P&L.
As this difference is related to Exports -at any point of time you can't capitalise
CAclubindia
