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Forex profit/loss accounting

Mukesh Babu (IPCC Student) (236 Points)

06 August 2013

When can I Account Forex Gain or Loss? on Receipt or Payment of amount or On the year end?

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19 Replies

CA Janardhana Gouda (Chartered Accountant) (60 Points)
Replied 06 August 2013

Dear Mukesh,

Your question is not clear : Sorry :

RAMESH CHANDRA SHARMA (munka istentisztelet) (899 Points)
Replied 24 September 2013

assuming that u are talking about current assets/liabilities so as per as-11 u have to recognise forex gain or loss at the end of the period say 31st march and at the time of receipt or payment as well....

let me explain it with an example

let us suppose u have a current liability of $ 50000 as on 31st march 2013

and the $ is at rs. 60 at that day and the rate was rs 58 on the date of transaction now u have to pay rs 2 more per dollar means u have to pay rs 100000 more which u will recognise as loss in p&l a/c for the year ended 31st march 2013

now on 15th june 2013 u made payment of $ 50000 at the rate of rs 59. as in the books ur liability stands at the rate of rs 60 so now ur having profit of rs 1 per dollar so u will be recognising the profit as well. so u have to recognise the foreign gain/loss on both date i.e. balance sheet date and date of payment or receipt..

pls correct me if m wrong

thanks...

Shivani (Learner) (1881 Points)
Replied 03 October 2013

Ramesh sir

so is following entries correct

P&L 100000

To Foreign Exchange Loss 100000

(at the end of year)

Foreign Exchange Gain 50000

To P&L 50000

(on 15th june)

regards

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RAMESH CHANDRA SHARMA (munka istentisztelet) (899 Points)
Replied 04 October 2013

yes ......entries are right

for example

if ur creditrs are increased and s the difference is transferred to p\l a/c so the net profit will be decresed ....

Shivani (Learner) (1881 Points)
Replied 04 October 2013

how can loss come on the credit side of PL Account

I don't agree

Foreign exchange loss being a loss has a debit balance which at the end of the year is transferred to PL by crediting it and debiting PL account.

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RAMESH CHANDRA SHARMA (munka istentisztelet) (899 Points)
Replied 05 October 2013

wait a while ....

let me think again....may be m wrong

CA Mitesh N Kothari (9821662799) (391 Points)
Replied 05 October 2013

Shivani is Correct

RAMESH CHANDRA SHARMA (munka istentisztelet) (899 Points)
Replied 05 October 2013

yes yes ...she ic correct.....

the following expert link confused me...

/experts/foreign-exchange-gain-loss-journal-entry-1052014.asp#.Uk-yXtLI0l8

Shivani (Learner) (1881 Points)
Replied 06 October 2013

Hi Members

Please ignore my previous entries and check these and let me know if there is any mistake

Machinery 2900000

To Exporter 2900000

On 31-st Mar 13

Foreign Exchange Fluctuation Loss 100000

To Exporter 100000

PL 100000

To Foreign Exchange Fluctuaion Loss 100000

15 Jun 13

Exporter 50000

To Foreign Exchange Fluctuaiton Gain 50000

31-Mar-14

Foreign Exchange Fluctuation Gain 50000

To PL 50000

Question

While exporter got paid at what was due to him i.e 50000 dollars X 59 = 2950000

[50000 X (58 + 2 -1 )]

The machinery is reflecting at 2900000 in Balance Sheet.

Shouldn't machinery also be showing at 2950000 in Balance Sheet? I feel it should.

Or am I doing something wrong with entries.

Please guide.

Shivani

Samrendra (Asst. Manager- Internal audit) (221 Points)
Replied 06 October 2013

Dear Shivani,

According to Cost Concept, Machinery has to be recorded on the basis of historical cost i.e. at 2,900,000 except in case of Capitalization of Interest on Foreign Borrowings under Borrowing Cost.

Excess of Rs. 50,000 paid is due to change in foreign exchange between time period of payment to seller and purchase of fixed assets.

CA LOVELY ARORA (C.A. B.Com (H) Graduate) (2151 Points)
Replied 06 October 2013

Para 46A of AS-11 would apply:-

In so far as they relate to the acquisition of a depreciable capital asset, can be added to or deducted from the cost of the asset and shall be depreciated over the balance life of the asset, and in other cases, can be accumulated in a ‘‘Foreign Currency Monetary Item Translation Difference Account” in the enterprise’s financial statements and amortized over the balance period of such long term asset or liability, by recognition as income or expense in each of such periods, with the exception of exchange differences dealt with in accordance with the provisions of paragraph 15 of the said rules.

Thus, entries:-
Machinery 2900000
To Exporter 2900000

On 31-st Mar 13
Foreign Exchange Fluctuation Loss / Machinery 100000
To Exporter 100000

FCMITD A/c 100000
To Foreign Exchange Fluctuaion Loss 100000

15 Jun 13
Exporter 50000
To Foreign Exchange Fluctuaiton Gain / Machinery 50000

31-Mar-14
Foreign Exchange Fluctuation Gain 50000
To FCMITD A/c 50000

Thus, in the end i.e. 31.03.14, you are required to make payment to exporter for the loan taken for purchase of Machinery as 29 lakh + 1 lakh -50000 = Rs. 29,50,000, and if M/n is depreciable asset, then it will be shown at same value because of para 46A., and if non-depreciable asset like land, and for e.g. you took loan for 5 years, then such amount of FCMITD a/c Rs. 100000-50000=50000 would be amortized/set-off over such 5 years to your P&L A/c.

Read more at: /forum/details.asp?mod_id=260226&offset=1

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