08 April 2010
I HAVE ENTERED INTO AN AGREEMENT WITH A FOREIGN VENDOR FOR SUPPLY OF AN EQUIPMENT FOR WHICH I HAVE MADE 100% ADVANCE PAYMENT ON 1.1.2010. I HAVE NOT RECEIVED THE GOODS UPTO THE DATE OF FINANCIAL CLOSURE I.E 31.03.2010. MY QUERY IS WHETHER I HAVE TO REINSTATE THE 100% ADVANCE ON 31.03.2010 AT THE RATE ON 31.03.2010?IS THIS ADVANCE A MONETARY ITEM AS PER AS-11 AS MY LIABILITY FOR THE ASSET HAS ALREADY EXHAUSTED?
08 April 2010
Thanx fr ur reply ,but as per AS-11 we have to reinstate only monetary items(i.e.money held and assets and liabilities to be received or paid in fixed or determinable amounts of money).and in my case our my liability for that asset has exhausted as whatever is the Exchange rate at the time of receiving of assets i didnt have to pay anything else for that assets.
08 April 2010
My dear, advance paid for fixed asset is not a monetary item as the same is not to be received or paid in fixed or determinable amount of money as the same will be adjusted against the cost of fixed asset. when u pay the advance, u pass the entry : Advance for fixed Assets A/c XX To Bank A/c XX When the delivery of asset is received, this advance will get transferred to cast of asset as under : Fixed Asset A/c XX To Advance for fixed asset A/c XX Regards, CA Shakuntala Chhangani
08 April 2010
Thanx for ur reply, but i have a question,,,,,if at the time of receipt of asset the ER is different from the rate on which i paid the advance .
e.g on 1.1.2010 i paid 100% advance 500$ @Rs 50 and the date on which i received the asset its 1$=55 then at that time i will have to book the Foreign exch fluctuation or not?
15 April 2010
Hi again Santosh, the answer to ur question is : IAS 21 para 16 : "the essential feature of a monetary item is a right to receive (or an obligation to deliver) a fixed or determinable no. of units of a currency.....conversely, the essential feature of a non-monetary item is the absence of a right to receive (or obligation to deliver) a fixed or determinable no. of units of a currency. E.g include : amount prepaid for goods and services (eg prepaid rent) , goodwill, intengible assets, inventories, property, plant and equipments, and provisions that are to be settled by the delivery of a non-monetary asset." from the abovementioned para, it is clear that advance given for fixed asset is a non-monetary item. hence there is no need of conversion of the same. Now, when the asset is purchased, what if there is ex. rate fluctuation ?? AS per AS 11, the initial recognition will be at the spot rate as on the date of transaction. Whatever exchange difference accrues as a result of exchange rate fluctuation will be recognised as ex. gain or loss. This is my personal interpretation. other experts view may differ. this interpretation is based on combined reading of AS 10, AS 11 and IAS 21. Regards, CA Shakuntala Chhangani
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