DEAR CHARTERED ACCOUNTANTS,
How to find out foreign Exchange gain or loss could you please tell with examples
plse guid me.....
AS-11 and IND AS 21 deal with Transactions in Foreign Exchange .
An enterprise may carry on activities involving foreign exchange in two way , It may have transactions in foreign currencies or It may have foreign operations . in order to include foreign currencies transactions in the financial statements transactions must be reported in the enterprise reporting currency.
So while dealing with such type of transactions there may be either foreign exchange gain or loss due to fluctuations in the rates of reporting currency and foreign currency in the financial statements.
I will explain with an example
A Ltd Indian company has Sold a Goods to Z Ltd in US worth 5000US dollar . rate of exchange on the date of transaction is 1US dollar =75 Indian rupees. and when we received money after one month rate was 1US dollar= 80 Indian rupees.
So Journal entries will be as follows.
Trade Debtors A/c Dr 375000/-
To Export Sales A/c Cr 375000/-
( export sales - 1dollar =75 INR )
When we receive money
Bank A/c Dr 400000/-
To Exchange Gain A/c Cr 25000/-
To Trade Debtors A/. Cr 375000/-
( receipt of payment , 1 dollar= 80 rupees)
So in above case we have exchange gain of RS 25000/- will be transferred to P&L account.
Exchange Gain A/c Dr 25000/-
To profit and loss A/c Cr 25000/-
(Gain transferred)
above is an example of exchange Gain.
Now in Case of loss exchange rate will be less for example 1dollar = 70 INR so receipt entry will be
Bank A/c Dr 350000/-
Exchange loss A/c Dr 25000/-
To Trade Debtors A/c Cr 375000/-
( receipt of payment, exchange loss )
Loss transferred to P&L account
Profit and loss A/c Dr
To Exchange loss A/c Cr
( Loss transferred)
In practically we have to consider exchange rates as per transaction date, balance sheet closing date etc. above is an example.
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