I need a clarification on accounting of LC transaction from the purchaser's point of view. To my knowledge the following entries need to be passed in the books of importer or purchaser. I've given two scenarios. Please correct me if I'm wrong.
a. LC established by XYZ Ltd., for purchase of Raw materials - Rs.10 Lacs
No entry needs to be passed. The amount to be shown as a contingent liability.
b. LC established by XYZ Ltd., for purchase of raw materials, but the goods received by them for processing. LC will be payable after 90 days usance.
Raw materials purchase (DR) Rs.10 Lacs, Sundry Creditors (CR) Rs.10 Lacs (assuming no credit has been taken for VAT/Cenvat). In this case, since the goods have been received, entries have to be passed in the books of accounts.
Pls clarify on the above - whether the accounting treatment is right. Even after passing the entries under (b), the .purchaser needs to show the amount under contingent liability?
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