A partnership firm has entered an agreemrnt with foreign company by which it has to pay royalty for each quarterly sales as 2% of Indian sales. Assume quarterly sales for march to be 50,00,000. Suppose on 24th march provision made in books for royalty payable & royalty actually paid on 4th April. Now on 24th march, dollar rate was 50 & on 4th april dollar rate was 51.
q1) If liability has to be booked as % of indian sales, then I think change of dollar rate should have no effect on booked liability. What is your opinion?
q2) If If suppose I calculated the dollar on 24th march ((5000000*2%)/50=2000$), now on 4th april, I paid (2000$*51=102000), whether Rs. 2000 has to be transferred to foreign exchange fluctuation?
q3) Is there any implication on 31st march of AS 11?
Royalty has to be paid as percentage of indian sales which has to be converted into dollars at time of payment.
What will be the difference if instead of partnership firm, it is company?