Exchange Rate Difference on Discounted Bills

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Bhavik Shah (Querist)
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29 June 2011 My Client has exported some items and discounted Sales Bill and Booked the Difference amount of Invoice Value and Discounted Value as ERD (Exchange Rate Difference). Is it Required to Again Revalue those Discounted Bills at Closing Rate as on 31/3/2011 as per AS 11?

Bhavik Shah

Bhavik Shah (Querist)
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30 June 2011 Experts Pls reply...its urgent

Bhavik Shah

Bhavik Shah (Querist)
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30 June 2011 this query is still open

Aashok Kumar Sharma online

Aashok Kumar Sharma online

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21 July 2024 Under AS 11 (revised 2003), "The Effects of Changes in Foreign Exchange Rates," exchange differences arising on the discounting, rediscounting, or revaluation of discounted bills are generally recognized in the profit and loss account for the period in which they arise. Here’s how it applies to your client's scenario:

1. **Initial Recognition of Exchange Rate Difference (ERD):**
- When your client discounted the sales bills, any difference between the invoice value and the discounted value (due to exchange rate changes) was likely recognized immediately as an exchange rate difference (ERD) in the profit and loss account for the period in which the discounting occurred.
- This initial recognition reflects the ERD based on the exchange rates prevailing at the time of discounting.

2. **Revaluation at Closing Rate:**
- AS 11 does not mandate a revaluation of discounted bills at the closing exchange rate (as on 31/3/2011 in your case) unless there are specific circumstances requiring such treatment.
- Generally, once the ERD has been recognized upon discounting, subsequent revaluation at the closing exchange rate is not necessary under AS 11.

3. **Treatment in Financial Statements:**
- The ERD recognized at the time of discounting should be disclosed appropriately in the financial statements.
- For year-end reporting (as on 31/3/2011), any outstanding discounted bills should be reported at their discounted value, adjusted for the ERD recognized at the time of discounting.

4. **Disclosure Requirements:**
- Ensure that the ERD on discounted bills is disclosed in the financial statements, specifying the nature of the exchange differences arising from the discounting activity.

**Conclusion:**
Under AS 11, once exchange rate differences on discounted bills have been recognized at the time of discounting, there is no requirement to revalue these bills at the closing exchange rate (as on 31/3/2011). The ERD recognized initially should reflect the exchange rate differences associated with the discounting activity.

Always ensure compliance with accounting standards and consult with a qualified accountant or financial advisor to address specific accounting treatments and disclosures required for your client's situation.

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