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Forward cOntract entries

Mehul (MIS Manager) (113 Points)

12 December 2007

Hi,

I want accounting entries for sale of forward contract. There is no undetlying assets. This is purley for hedging our receivables but not against particular recevables. Specially I want entries at the time of closing the FEC. Where reinstatement require on outstanding contracts on reporting date.

Please mail me mehulddedhia2002 @ yahoo.com or mehul.dedhia @ hurix.com

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(Guest)

see if the following ll help u $On 24th January, 2006 A of Chennai sold goods to B of Washington, U.S.A. for an invoice price of $40,000 when the spot market rate was Rs.44.20 per US $. Payment was to be received after three months on 24th April, 2006. To mitigate the risk of loss from decline in the exchange-rate on the date of receipt of payment, A immediately acquired a forward contract to sell on 24th April, 2006 US $ 40,000 @ Rs.43.70. A closed his books of account on 31st March, 2006 when the spot rate was Rs.43.20 per US $. On 24th April, 2006, the date of receipt of money by A, the spot rate was Rs.42.70 per US $. Pass journal entries in the books of A to record the effect of all the above mentioned effects. . Journal Entries in the books of A 2006 Jan. 24 B Dr. 17,68,000 To Sales Account 17,68,000 (Credit sales made to B of Washington, USA for $40,000 recorded at spot market rate of Rs.44.20 per US $) ” ” Forward (Rs.) Contract Receivable Account Dr. 17,48,000 Deferred Discount Account Dr. 20,000 To Forward ($) Contract Payable 17,68,000 (Forward contract acquired to sell on 24th April, 2006 US $40,000 @ Rs.43.70) March 31 Exchange Loss Account Dr. 40,000 To B 40,000 (Record of exchange loss @ Re.1 per $ due to market rate becoming Rs.43.20 per US $ rather than Rs.44.20 per US $) ” ” Forward ($) Contract Payable Dr. 40,000 To Exchange Gain Account (Decrease in liability on forward contract due to fall in exchange rate) 40,000 ” ” Discount Account Dr. 14,667 To Deferred Discount Account (Record of proportionate discount expense for 66 days out of 90 days) 14,667 April 24 Bank Account Dr. 17,08,000 Exchange Loss Account Dr. 20,000 To B 17,28,000 (Receipt of $40,000 from B, USA customer @ Rs.42.70 per US $; exchange loss being Rs.20,000) ” “ Forward ($) Contract Payable Account Dr. 17,28,000 To Exchange Gain Account 20,000 To Bank Account 17,08,000 (Settlement of forward contract by payment of $40,000) ” ” BankAccount Dr. 17,48,000 ” ” To Forward (Rs.) Contract Receivable 17,48,000 (Receipt of cash in settlement of forward contract receivable) ” ” Discount Account Dr. 5,333 To Deferred Discount Account 5,333 (Recording of discount expense for 24 days: Rs.20,000 ´ Rs.5,333 90 days 24 days = )

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(Guest)

i want notes for accounting of holding companies

Mehul (MIS Manager) (113 Points)
Replied 13 December 2007

Thanks. Just want one clarification, @ whar rate this entry has been passed on 31st March. ” ” Forward ($) Contract Payable Dr. 40,000 To Exchange Gain Account 40,000 (Decrease in liability on forward contract due to fall in exchange rate) As per my knowledge it should be - Spot of 31st Mar is 43.20 - FEC rate 43.7 X contract value 40000 = 20000.

(Guest)

mehul,its the diff between 44.2(date os effecting the sale) and 43.2(31 march) v have passed the creidt entry for payable at 44.20 and at 31st march v ll record it at spot as on march 31 so the diff will b between 44.2 and 43.2 and not 43.7 and 43.2 this is as per the icai revision test paper the answer is fool proof corect

CA Kunjan - www.canaresh.com (www.canaresh.com) (394 Points)
Replied 08 January 2008

if we debit forward payables & forward receivables, balance sheet becomes too huge in amounts. therefore, practically companies only pass entry for amorisation of premium of forward contract over life of contract. Ofcourse, normal revaluation of debtors/creditors will be done at year end. is that ok? kunjan shah- tax accountant, kunjannareshshah @ yahoo.com

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ganesh (account manager) (22 Points)
Replied 17 March 2012

Dear Sir,

I am book the forward contract dated on 27/12/2012