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Foreign exchange transaction

Aashish Tiwari (Audit, finance) (429 Points)

14 May 2011

Dear friends

Please give me an appropriate reply regarding my Quiery.. suppose, company purchased a packaging materials or Machinery from foreign says on 1st april, 2010 with exchange rate 50. But the goods receipt after 6 month and now the exchange rate is 53. How can i show into my accounts. Which date i should consider for accounting.. Bills of materials rates or Goods receipts rates. what is the treatment as per AS 11. Please do needful Guys.. Regards

Ashish H Tiwari

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5 Replies

(Guest)

For recording the entry we should see on which date we made the purchase but not the date of receipt of goods or materials.

Just ignore when u received the goods. consider 1st of April.

Thank you.

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(Guest)

For your reference i am giving the example for you.

Eg: X Ltd borrowed in US $ 5,00,000 on 31-12-04 which will be re-paid (settled) as on 30-06-05. X Ltd, prepares financial statement ending on 31-03-05 rates of exchange are -

31-12-04 US$ - 44.00 (Date of transaction)

31-03-05 US$ - 44.50 (Reporting date)

30-06-05 US$ - 44.75 (Settlement date)

Entries :

On the date of borrowing:

Bank A/c Dr. 2,20,00,000 ( 5,00,000 * 44)

To Borrowing 2,20,00,000

On 31-03-05:

On this date borrowing (monetary terms) will be converted at the closing rate for the purpose of reporting i.e. 5,00,000* 44.50 = 2,22,50,000. Then entry ---

P& L A/c Dr. 2,50,000 (5,00,000 * 0.50)

To Borrowings 2,50,000

On 30-06-2005 The borrowing will be settled at Rs. 44.75 = 1 US$ then,

Borrowings Dr. 2,22,50,000 (5,00,000 * 44.50)

P&L A/c Dr. 1,25,000 (5,00,000 * 0.25)

To Bank A/c 2,23,75,000

Thank you.

1 Like

CA Rakesh Garg (Asst. MGR Taxation) (510 Points)
Replied 16 May 2011

hi everyone,

jayashree i m satisfy wid ur first ans. but example in not matched wid qus.this example for the treatment of foreign currency loan.

the ans is very simple.

enter in books at first @ 50 on ist april.

payment will be made on spot exg rate and diffence is recognised to P/L as "foreign Exchange Differences"

(Guest)

Yes exactly. Agree with you. Example given is not for the above question asked by aashistiwari, but for the sake of better understanding, i have given.

However thanks for ur valuable comment Rakesh.

1 Like

Aashish Tiwari (Audit, finance) (429 Points)
Replied 16 May 2011

Thanks for your valuable advice & treatment of accounting.. Appreciate for ur kind help A.Jayasri & Rakesh Garg.. Good example for furhter clearing of Queiry.. Regards ( Aashish h tiwari)