Dear Friends,
My query is as under:
X limited imports goods on buyer's credit basis on 1st june, 2013 on 180 days credit basis. The Invoice is raised by the overseas supplier on 1st June, 2013 when the $ say was Rs. 59. Thereafter on 31st Dec 2013 the buyer's credit is paid off by X Limited @ USD = 62.50. The exchange loss is Rs. 3.50 and out of the total goods imported as on 31st March 2014, 40% of the goods remain unsold in the books.
As per AS 11 the entire forex loss / gain is to be taken to the debit / credit of the P & L account. However, the unsold stock would have a component of 40% of the forex loss which in strict sense would need to be taken to the next accounting period. Also in the Berg Trading Limited vs. Asst. Cit on 30 August, 2006 Bench: T Sharma, V Murthy and in case of CIT v. British Paints India Ltd. (1991) 188 ITR 441, it was held that the foreign exchange fluctuation has arisen in assessee's case directly in respect of closing stock and, therefore, that the exchange loss relatable to the closing stock has to be considered as only part of closing stock and that the assessee is not correct in claiming the entire loss even that relating to the closing stock as an expenditure incurred.
My query is : What is the correct method of valuing the closing stock in such a situation? AS 11 on straight reading talks of debiting the entire loss / gain to P & L while Income Tax authorities view that to the extent of the closing stock it should reflect in the closing stock, which is also more logical.
Request the members to throw some light on the above.
Thanks and regards
CAclubindia
