Difference in foreign exchange on stock in transit

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Kashish Grover (Querist)

10 August 2011 Hi.. i am doing audit of a company who import goods .

Date of Bill of Lading - 26.03.2011 .. 1USD = Rs. 45.71

Payment Date - 31.03.11.. 1 USD @ Rs 44.81..

31.03.11 Closing Rate.. 1USD = Rs. 44.90

Date on which goods are received in godown - 02.05.11

Now the question is that company had made a purchase on 26.03.11 and since the goods are not received it would be shown as Stock in transit and hence company cannot book it as a purchase.

Now my question is how the exchange difference would be calculated in the above circumstances.

Moreover, when they will book purchase in may they would book it at the rate of Bill of lading. So how would they calculate exchange difference in that case also.

So hence i want that how much amount will come as exchange difference in 2010-11 and 2011-12.

Thanking you in anticipation and i would highly appreciate a prompt reply as it is very urgent.

CA. Vikash Dwivedi

CA. Vikash Dwivedi (Expert)

10 August 2011 Is your company importing goods on approval basis?

If it is not, then my question is why it should not be regarded as purchase?

It should be a treated as purchase and goods will be shown as stock in transit.

FX rate: on initial recognition it will be Rs. 45.71 and on the b/s date it will be Rs. 44.90.

FX differenc: will be taken to P&L Account.

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Kashish Grover

Kashish Grover (Querist)

10 August 2011 Thank you for your prompt reply.

But sir as per excise department purchase should be booked on the date goods are received.

Moreover, what would be the treatment of payment made on 31.03.11 @ 44.81 ??

CA. Dashrath Maheshwari

CA. Dashrath Maheshwari (Expert)

10 August 2011 Date of bill of lading has no meaning here.
As the material has been received after the date of payment which by chance comes on 31.03.2011 therefore there will not be any exchange loss or gain.
You need to book stock in transit equal to amount actually paid.

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CA. Dashrath Maheshwari

CA. Dashrath Maheshwari (Expert)

11 August 2011 The liability is already paid and hence how can you account Exchange difference.
Accounting of Exchange difference as per Accounting standard-11 should be recognised for the future expected losses due to foreign exchange fluctuations.

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