Ifrs fx contract treatment

Jack (abc) (25 Points)

28 March 2012  

Hello ,

 

I would like to receive inputs on this query, thanks in advance.

 

A company based in India wants to buy goods from company based in Europe. Following scenario can be assumed

 

01.03.2012 : A deal was done = The company in India would buy100 EUR (purchase) worth of goods, by credit term 90 days after invoice date (estimated due 31.08.2012)

 

The company in India, book FX forward contract =1 EUR @ 42.00 INR/EUR by settlement date 31.08.2012

 

31.05.2012 : The suppliers finishes the production after taking almost 3 months and issue invoice for shipment.
 

: the buyer receive invoice and book account payable 100 EUR by current actual FX rate which may be @ 39.00 INR/EUR. First of all, is it allowed to book A/P at 39.00 INR/EUR?

 

31.08.2012 : The buyer pays to supplier by FX booked rate = 100 EUR @ 42.00 INR/EUR, and buyer books FX loss = (39 INR – 42 INR ) x 100 EUR = 300 INR.

 

Since the buyer has now a loss of 300 INR and since this being a hedged transaction. I would like to know how the FX loss of 300 INR would be offset to make it a zero sum game?

 

Thanks.