•As per Accounting Standard-10, the cost of an item of fixed asset comprises its purchase price, including import duties and other non-refundable taxes or any directly attributable cost of bringing the assets to its working condition for its intended use; any trade discounts and rebates are deducted in arriving at the purchase price.
•As per Accounting Standard-11, a foreign currency transaction is a transaction which is denominated in or requires settlement in a foreign currency, including transaction arising when an enterprise acquires or disposes of assets, or incurs or settles liabilities, denominated in a foreign currency.
•A foreign currency transaction should be recorded, on initial recognition in the reporting, by applying to the foreign currency amount the exchange rate between the reporting currency and the foreign currency at the date of the transaction. For practical reasons , a rate that approximates the actual rate at the date of transacti•The Institute of Chartered Accountants of India(ICAI) in consecutive opinions, has taken a stand that ‘the date of transaction’ in accounting is that date on which a transaction becomes eligible to be recognized in the books of account of the enterprise as per the relevant normally accepted accounting principals(EAC VOL-XVI-78)
•The point of time when all significant risks and rewards of the ownership passed on to the buyer depends on the terms and conditions of the contract and timing of recognition of purchases or sale should be such when all significant risks and rewards of the buyer provided the amount of consideration is measurable reliably.( EAC VOL-XX-10)
•Transactions of sale or purchase of goods in international trade are concluded either on (1) F.O.B or (2) C&F or (3) CIF basis on is often used.
•Following options are available to reporting enterprise to recognize the date of transaction:
ØDate of Invoice
ØDate of Bill of Lading
ØDate of Shipment
ØDate on which goods were received by the Clearing Agent
ØDate on which goods were cleared from customs
ØDate on which goods finally arrive at unit and taken into stocks
•In the absence of any specific mention in the contract, the rule of thump in the Sale of Goods Act has to be applied, which states that in the case of ‘’unascertained’’ goods, the property does not pass until the goods are ascertained and such goods after ascertainment have been unconditionally appropriated to the contract.
•Where the payment is made in advance there is no question of endorsement of documents by the banker and date of transaction again is to be decided on the basis of intention of parties.
•The law is well settled that in the case of contract for sale of unasertained goods, the property does not pass to the purchaser unless there is unconditional appropriation of the goods in deliverable state to the contract.
Opinion
Company should initially recognize assets at foreign exchange rate as on date of transaction keeping above mentioned effects.
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