a company has given advance of $10000 @ 45(Rs.450000) to its supplier of raw material. After 5 months when rate of dollar increase to47 it receives material & credited the supplier account.
supplier 450000
To Bank 450000
( being advance made)
Which of the following two entries is correct?
Purchase 450000 Purchase 470000
To supplier 450000 OR To supplier 450000
( being advance adjusted) To exchange difference 20000
2nd entry is correct...
II nd entry is correct and the amount of Rs.20000/- is your exchange rate gain which is the invisible profit to the company and vice-versa.
is there any such illustration in any book so that i can support the answer because i am finding it difficult to convince the client who is insisting that there will be no exchange fluctuation.
the entries to be made are
1. advace given to suppliers DR 450000
To Bank 450000
(Being advance given to supplier for supply of material)
2. the following entry has to be passed on the date the material has been perchased from him
a. first entry should be for exchange gain on monetory item ie advace given to supplier
adv given to supplier DR 20000
exchange gain on forex transaction 20000
b. the entry for purchase of material is
purchase dr 470000
To Adv given to sup 470000
The above answers seems to be wrong. We have to see the definition of Monetary item, which only require restatement. Any advances for purchase of raw material or capital items are not monetary items since you do not get fixed determined amount of money. Therefore, there is no requirement to restate advances paid for raw material and therefore inventory will get accounted at Rs 450,000. There is an EAC opinion from ICAI to support this. The position is same in IFRS as well.
Hope this clarifies.
Regards, Yogesh Singhal
where i can get that EAC opinion. please give that EAC opinion for more calrity
yogesh can u please give me the link of eac text
thanks in advance
CAclubindia
