Ad-Free CAclubindia and Daily Updates on your mobile. Subscribe Now!

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

Reply
Follow
Share

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.

Upgrade to CAclubindia Pro. Subscribe Now!

(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)