Forex transaction

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Guest

Guest (Querist)

19 May 2008 Can any one guide me about the accounting treatment of the FOREIGN EXCHANGE TRANSACTION? The details of the transaction are as mentioned below;

Purchase Order of Machinery
07.06.07
Euro 100
Ex. rate : Rs. 54/euro

Advance payment
11.06.07
Euro 20
Rs. 54.95/euro

LC issued
15.11.07
Euro 80
Rs. 56/euro

1st Invoice date
31.12.07
Euro 70
Rs. 57/euro

Payment against 1st invoice
18.02.07
Euro 60
Rs. 58.42/euro

2nd Invoice
31.01.08
Euro 30
Rs. 57.75/euro

Payment against 2nd Invoice
07.03.08
Euro 20
Rs. 62/euro

Erection & Commissioning Adv payment
03.04.08
Euro 5
Rs. 62.60/euro

Invoice of Erection & Commg.
30.04.08
Euro 5
Rs. 64/euro

I have recorded the payments at actual amount paid.

Now I am confused about the accounting of fixed assets that at which rate I shall account the both invoice and how to adjust the difference arising due to exchange difference?

Thanks & Regards
Rohit Boraniya

Satish K Sekhar.ACCA

Satish K Sekhar.ACCA (Expert)
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20 May 2008 In many overseas contracts entered into between Indian parties in currencies other than INR, Accountants need to face with the challenge of treating the exchange fluctuation in thier books of accounts. Normally any forex loss/gain in overseas transaction with a revenue nature will be recognized thorugh the profit & loss account by taking a reference forex rate/prevailing rate for booking the transaction in the books of accounts.Since ,in your case, an asset is built up through the transaction ,the actual INR spent for buying the EURO can be the cost of your assets as you are booking the asset in Indian currency. For this purpose you may net off the loss/gain and book such net loss/gain to the asset in question.

Guest

Guest (Querist)

20 May 2008 thanks satish k sekhar

it means i shall book the asset at the exchange rate prevaling as on the date of invoice and the difference in the exchange loss shall be treated as loss/gain and to be accounted in p&l account.

regards
rohit

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CA. Vineet Grover

CA. Vineet Grover (Expert)
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21 May 2008 Exchange Loss / Gain on asset should get effected with that particular asset and should not be shown in the P&L a/c

Rgds/
Vineet

Satish K Sekhar.ACCA

Satish K Sekhar.ACCA (Expert)
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21 May 2008 Dear Mr. rohit,

It seems my answer was not properly intrepreted by you. The intreprepretation by Mr. Vineet Grover is correct.

Only Forex loss/gain with a reveune nature will be written off thorugh P& L. Yours is capital nature so need to capitlaize the actual amount spent.