CASE
Import Ltd. (Indian Company) purchases 10,000 Kg. of inventory for US $ 1,00,000 from Export Inc. (USA Company). As per Import Ltd. accounting policy, Import Ltd. books the purchases on BL date, so in this case Import Ltd. books the purchases on 01-03-04 i.e. on BL date. The rate as on 01-03-04 is say Rs. 45 for one US $.
On 01-03-04 Import Ltd. has passed the following entry in books of accounts:
Import Purchase a/c Dr. Rs. 45,00,000
To Exports Inc. a/c Rs. 45,00,000
As per agreement terms Import Limited has opened a Sight LC for making the payment of US $ 1,00,000. On 08-03-04 Import Limited makes payment to Export Inc. via LC mode. The rate as on 08-03-04 is say Rs. 50 for one US $.
On 08-03-04 Import Ltd. has passed the following entry in books of accounts:
Export Inc. a/c Dr. Rs. 45,00,000
Foreign Exchange Fluctuation a/c Dr. Rs. 5,00,000
To Bank a/c Rs. 50,00,000
Query 1: This imported consignment remains in stock as on 31-03-04. Import Ltd., wants to adjust the exchange fluctuation arising on inventory purchase to the cost of inventory. Can Import ltd. do so?
Query 2: This import consignment is sold on 25-03-04. Import Ltd., wants to add the arising exchange fluctuation in purchase cost and does not want to show separately under the head "Foreign Fluctuation". Can Import ltd. do so?
CAclubindia
