Foreign currency Rate

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CA Sanjay Baheti

PROPRIETOR

1160 Points Posted on 24 March 2010

Dear Expert,

A partnership firm purchased a machinery from U.S at 10000 dollars on 13.2.2009(ex rate rs.48.72). Ex rate on 31.3.2009 rs.50.95. The supplier was settled in subsequent year i.e on 12.6.2009 when the ex-rate was rs.47.41. Kindly clarify what is the amount at which the asset is to be recorded and liability recognised on the date of purchase, what is the entry to be passed on 31.3.2009 to bring the suppliers account to the balance sheet date ex rate? And what is the entry to be passed on the settlement date? Sec 43 A of the Income tax Act seems to be contrary to AS 11.

Regards

CA Sanjay Baheti

Replies (2)

Ratan Deep Saxena

Asstt Manager (Accounts & Finance)

2998 Points Posted on 25 March 2010

Dear Mr. Sanjay,

As-11 Shall be Applicable for such Type of Transactions. These Transactions are known as Foreign Exchange Transactions. As per As-11 "Accounting For Foreign Exchanges", Assets ahall be recorded at rates prevailing at the time of purchase of assets and at the year ended exchange difference shall be transferred to Exchange Fluctuation reserves and shall be charged to Profit & Loss Account. At the year end 31.03.2009 10000* (50.95-48.72) =Rs. 22300/- shall be transferred to Exchange Fluctuation Reserve Account and same shall be charged to Profit & Loss Account.

regards,

ratan

CA Sanjay Baheti

PROPRIETOR

1160 Points Posted on 27 March 2010

Dear Mr.Rajat,

Thanks for reply in part. As I have asked as to entries to be passed on (i) date of Purchase (ii) date of Balance Sheet

(iii) Date of Settlement. However you replied only first two. what's about third. Further i had doubt that when Foreign currency amount is basically used for acquisition of Machinery i.e. on Fixed Asset being capital in nature then how the variations/devitions in foreign excchange rate is routed through Profit & Loss Account as in my knowedge it affects only Fixed asset i.e. Machinery.

Please clarify.

Regards.