Kanchan (student) (29 Points)
02 May 2012For a Company dealing in exports ( which enters into forward purchase contract for hedging) , is it compulsory to make entries regarding loss or profit as on the date of entering into contract? Also what sort of entries should be made on the closing of the financial year?
As far as I know AS 30 is applicable. But since the standard is quite lengthy I could not quite make out what parts of it are dealing with forward purchase contract .( I need a bit urgently)
Thanks a lot..
Saurabh Malpani
(CA Final)
(514 Points)
Replied 02 May 2012
CA Ganesh Agarwala
(Audit Senior Manager)
(239 Points)
Replied 04 May 2012
hello kanchan,
first of all let me say this that as-30 is still not compulsory in india. you are not bound to follow as 30 but is recomedetory. thequestion is you are asking is about accounting of derivative financial instruments in the books of accounts. as you know you can enter into a derivative contract through forward agreement of futrures or through buying options. accounting is differnt in each case as per as 30.
let us first of all discuss forward agreement, as you know buying a forward agreement tends to buying nothing so there will be know entry in the books of accounts you enter into the forward contract. now at the end of the uear you need to find out the value of the underlying security you are trading in and find out where you are losing money or gaining money. if you are loosing then record a liability through profit and loss account namely derivative financial instrumrnt forwrd(dfi-f). now on the date of settlement again revalue the contract and settle the contarct by either paying or reciving cash and simulateneous affect in dfi-f a/c.
in case of futures as you know you margin money is requiered to you need to record the entry for paying that margin money and then later on deposit the amount required to make the furtures contract mark to magin. entry will be mtmdc a/c---dr, to bank. at the year end follow the same procedure in case of forward. now on settlement revelue same as in case of forward by this time by debiting or crediting mtmtdc a/c.
next time i will tell you about the options valution
cheers
ganesh agarwala
CAclubindia
