Foreign exchange transaction

For recording the entry we should see on which date we made the purchase but not the date of receipt of goods or materials.

Just ignore when u received the goods. consider 1st of April.

Thank you.

For your reference i am giving the example for you.

Eg: X Ltd borrowed in US $ 5,00,000 on 31-12-04 which will be re-paid (settled) as on 30-06-05. X Ltd, prepares financial statement ending on 31-03-05 rates of exchange are -

31-12-04 US$ - 44.00 (Date of transaction)

31-03-05 US$ - 44.50 (Reporting date)

30-06-05 US$ - 44.75 (Settlement date)

Entries :

On the date of borrowing:

Bank A/c Dr.   2,20,00,000 ( 5,00,000 * 44)

    To Borrowing 2,20,00,000

On 31-03-05:

On this date borrowing (monetary terms) will be converted at the closing rate for the purpose of reporting i.e. 5,00,000* 44.50 = 2,22,50,000. Then entry ---

P& L A/c    Dr.   2,50,000 (5,00,000 * 0.50)

      To Borrowings      2,50,000

On 30-06-2005 The borrowing will be settled at Rs. 44.75 = 1 US$ then,

Borrowings   Dr.    2,22,50,000 (5,00,000 * 44.50)

P&L A/c          Dr.    1,25,000 (5,00,000 * 0.25)

        To  Bank A/c       2,23,75,000

Thank you.

hi everyone,

jayashree i m satisfy wid ur first ans. but example in not matched wid qus.this example for the treatment of foreign currency loan.

the ans is very simple.

enter in books at first @ 50 on ist april.

payment will be made on spot exg rate and diffence is recognised to P/L as "foreign Exchange Differences" 

Yes exactly. Agree with you. Example given is not for the above question asked by aashistiwari, but for the sake of better understanding, i have given.

However thanks for ur valuable comment Rakesh.

Thanks for your valuable advice & treatment of accounting.. Appreciate for ur kind help A.Jayasri & Rakesh Garg.. Good example for furhter clearing of Queiry..  Regards ( Aashish h tiwari)