accounting for Forward contract

No, you cannot book that Rs.20,000/- as your income. If you would have not entered into forward contract in that case you will have to book loss of Rs.40,000 (4,40,000-4,00,000). You have not earned that Rs.20,000 in actual so you cannot bokk that as your income.

Originally posted by : CA HARISH KUMAR
	No, you cannot book that Rs. 20,000/- as your income. If you would have not entered into forward contract in that case you will have to book loss of Rs. 40,000 (4,40,000-4,00,000). You have not earned that Rs. 20,000 in actual so you cannot bokk that as your income.

 nice explanation agreed since unrealised gains are not accounted for in the books

Harish you are really good in accounts

If The Actual rate on 30.06.10 is 1 USD = Rs. 39, then what is the treatment?

pls reply

Hi Ankur

AS 11 speaks about both types of forward contract - speculative and non-speculative. For accounting speculative forward contracts, the actual exchange rate on the date of expiry of forward contract is generally irrelevant. (Speculative means, entering into any Forward Contract without any intention to actually use the underlying asset)

For Non Speculative Forward Contract, the closing exchange rate on the date of expiry of forward contract is relevant. This is because, Forward Contract Asset / Liability would be restated as at every reporting date. The corresponding gains / losses would be effect on the Carrying Amount of the Hedged Asset.  

Please confirm if you are referring to the Speculative Contract or Non Speculative Contract. Would be able to answer better that way.

Rineesh R

thanks, wel please tell me the treatment of both speculative as well as non speculative, if posible for you....

This is the example of speculative or non speculative?

Hi every one...

Here I have a query on Accounting for contracts where I am little bit confused.

Let example:

I am an importer where I imported a material for 10000USD through L/C and entered a Foward contract with bank.

Now I have the exchange rates like this

Date of inception 01.04.10 (Spot Rate) 1 USD = Rs.40

Forward rate for 30.06.10 (payment date) 1 USD = Rs.42

Actual rate on 30.06.10 is 1 USD = Rs. 44

Here in the above case referring to AS-11, when I will book for the forward contract of 10000 USD @ Rs. 42 I will account for the loss i.e. deferred premium of Rs.20000 to be amortised through the period of contract.

So as on 30.06.10 I am paying Rs.420000 (Rs.42 * 10000) where if I Should haven't gone for the forward contract I may have paid Rs. 440000 (Rs.44 * 10000).

So the differntial amount of Rs.20000 which I saved by going with forward contract, can I account it as an income. the answer is No.