Difference in foreign exchange in case of stock in transit

As the goods are in transit as on 31.03.2011, u had to book the liability based on Bill of Lading date and no exchange differences will occur on that date or in that Financial year.

In May, they will book the purchase as u said at the rate prevailing on the Bill of Lading date. That will be the period when the exchange difference will be get accounted.

In 10-11 - NIl

Goods in transit is recorded only when the risks and rewards associated with the inventories are passed to the buyer. Assuming that risk and rewards are passed to the buyer on 26 Mar and the goods in transit were recorded @ rate of 45.71 with a corresponding liability in payables. On the date of payment, the creditors will be settled @ rate prevailing on the settlement date. The difference between the settlement rate and the rate at which the creditors were recorded needs to be taken to the income statement either as gain or loss. In the next year, these goods in transit will be reflected in the opening stock of that month. Date of receiving goods in the godown is irrelevant for accounting purposes.

Let me know if the readers are having any concerns.

FY 10-11

a)Goods in transit a/c Dr.         @ 45.71

                          To party a/c

b)Party A/c                      Dr.         @ 44.81

                    To Bank A/c

c)Party A/c                       Dr.         @ (45.71-44.81)

                   To Exchnage Gain A/c 

FY 2011-12

Purchase  A/c                 Dr.     @ 45.71

                To goods in transit

plz correct me if m wrng