Credit note against Export on original invoice rate or Current rate

Should a credit note be processed at the same foreign exchange rate as the original invoice, even when the invoice is several months prior? Or should the current FX rate be used and and exchange gain/loss be calculated?

Replies (4)
Quick Summary
This discussion explores whether a credit note for an export should be processed using the original invoice's foreign exchange (FX) rate or the current rate. The consensus leans towards using the current rate to accurately reflect exchange gains or losses, especially if the original contract doesn't specify otherwise. The examples provided illustrate how to account for these adjustments in purchase and inventory accounts.

This is a contract issue. If the seller promises to reimburse in local currency, you can adjust the amount of goods returned to current rate and no need for FX translation. If the seller does not wish to reimburse with the current terms, you have to recognise FX translation gains or losses. 

Purchased 1000₹ worth goods

By Purchases 1000₹

To Bank a/c 1000₹

When goods returned

By Returns a/c 500₹

To Purchases a/c 500₹

inventory was recorded as 

CoS a/c 500

To Inventory a/c 500₹

seller issues credit note on current currency which is 1₹ more on 1₹ Previously 

Purchases 500₹

To fx Gain 500₹ 

And adjustments again 

CoS a/c 1000₹

To Inventory 1000₹

This must tally

 

 

 

 

 

Sorry bout this, didn’t give much thought about bs equation

On credit note at current cost

Purchases a/c 1000₹

To Returns a/c 500₹

To Revaluation reserve a/c 500₹

then inventory is adjusted to profit and loss

Cos a/c 1000₹

To Inventory a/c 1000₹

 

Bank -1000

Inventory 1500

assets = 1500

then Retained earning increased by 1000₹ after cancelling inventory and cos (Purchases) 

retained earnings 1000₹

Reval reserve 500₹

Liabilities 1500₹

 

Thank you for the reply.

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