Exchange rate variation

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Nirpendra Singh

Nirpendra Singh (Querist)
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30 December 2011 Should we calculate exchange rate variation at the time of purchase if payment made in advance ,

CA Siddhartha Bhardwaj

CA Siddhartha Bhardwaj (Expert)
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30 December 2011 Where payment is made in advance then exchange rate difference will be calculated at the time of booking purchase invoice.

Mahesh Paryani

Mahesh Paryani (Expert)
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30 December 2011 Dear friend.

As per AS 11 advance payment is treated as non monetary asset and recorded at historic cost. and onse the payment is made there is no case of forex gain or loss for that part of transaction.

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CA Siddhartha Bhardwaj

CA Siddhartha Bhardwaj (Expert)
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31 December 2011 Mr Mahesh I do not agree with you.

Kindly explain what will be the treatment in the following case:

Advance of USD 50,000 given in May for a purchase. USD rate is Rs. 50.

Material received in July when exchange rate is Rs. 52.

Exchange gain will not arise in this case??

Nirpendra Singh

Nirpendra Singh (Querist)
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31 December 2011 Dear mahesh caan u plz give the reference note of AS 11

Mahesh Paryani

Mahesh Paryani (Expert)
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31 December 2011 I am sorry i did not explain it properly

let me explain you with an example

product cost $150

Advance payment $100

Financial year 2010-2011

Transaction date 29 Mar 2011

Advance payment date 29 Mar 2011

Material receipt date 29 Mar 2011

Balance payment date 3 April 2011

Exchange rate on 29 Mar 2011 Rs 49

Exchange rate on 31 Mar 2011 Rs 50

Exchange rate on 3 April 2011 Rs 51

Now when you pay an advance 100*49=Rs. 4900

this amount would be recorded in books

on 31 Mar 2011 (Year end books closure)

Exchange gain or loss 50*1=Rs. 50
This loss would be booked as of 31 Mar 11

While making the full and final payment further loss of 50*1=Rs. 50 would be booked

I hope i made it clear.