Forward contract
This query is : Resolved
03 May 2012
I have some doubt about accounting treatment of forward contract.
A company, export house, has booked forward contract for sale of USD. On 01.01.2012 it has booked forward contract of USD 20 lakh for 9 months ( dated 30.09.2012) at rate of INR 50 per USD. Premium paid for this is Re. 0.95. Spot rate on 01.01.2012 is 48. Accounting year is financial year. This transaction is only forecasted transaction. What should be the treatment of this forward contract in balance sheet ending 31.03.2012 ?
A company, export house, has booked forward contract for sale of USD. On 01.01.2012 it has booked forward contract of USD 20 lakh for 9 months ( dated 30.09.2012) at rate of INR 50 per USD. Premium paid for this is Re. 0.95. Spot rate on 01.01.2012 is 48. Accounting year is financial year. This transaction is only forecasted transaction. What should be the treatment of this forward contract in balance sheet ending 31.03.2012 ?
03 May 2012
Forward contract with some bank is not DERIVATIVE transaction and hence no confusion on account of mark to market. On 1.1.2012 the entry is made in the books of accounts at the premium rate paid. You do not have to do anything because you have passed on the fluctuation risk on to the heads of BANK by paying the premium. Make disclosure by way of note.
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