Exports hedged by forward cover- accounting entries

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sivakumar (Querist)

28 November 2012 I welcome members opinion on the accounting aspects related to the following. transaction.

Date of Sales Contract - 15th April 2012
Nature: Supply of Cotton -1 lac bales @ USD 3.5/bale on or before 1st May 2012
Exchange Rate on 15th April 2012: 1 USD = INR 50
Forward Cover booked on 15th April for 1 USD = Rs. 50.5

Date of Sales: 1st May 2012 ( relating to the above sales contract)
Invoice Value : USD 3,50,000/- (1 lac cotton bales @ USD 3.5/ bale)
Exchange Rate on 1st May 2012 : 1 USD = INR 53 ( as per Bill if lading - customs quoted rate)

Payment Received Date : 15th May 2012
Amount Received : USD 3,50,000
Amount realised : INR 1.7676 crore ( Based on forward cover taken on date of contract)
Exchange Rate on 15th May : 1 USD = Rs. 54

My questions:
1. What is the exchange rate to use for booking the sales? Is it the exchange rate on date of sale ( i.e Rs. 53 )or is it the rate for which forward cover is booked?

2. Since the sales contract precedes the actual sales transaction, and forward cover is taken on the date of sales contract itself, is there an accounting entry required to show the liability and receivables in the books once the sales contract is booked?

Please advise on the scheme of accounting entries in such a situation.

Regards

CA PARAS BAFNA

CA PARAS BAFNA (Expert)

02 December 2012 1. The Sale has to be booked @ 53.
.
2. The relevant date is the Fwd Contract Date, i.e. 15-04-2012 when you are required to show the liability and receivables corresponding to the Forward Currency Contract. The Difference (50.5-50.0)=0.50 has to be shown as Deferred Income or Income.

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