Dear Experts !
This is my first post on this forum and I am happy to have joined the league of experts.
Well I have seen many other posts on this forum regarding journal entries for L/C (This is a local L/C). I am still confused and here is my question (in a story format):
"ABC is a cement company and sells cements on cash and credit. XYZ is a cement trading company and bought cement from ABC on 1st January 2012 for Rs.150,000,000 on credit for 3 months (31st March 2012). ABC cannot wait untill 31st March 2012 for the payment to be received and, therefore, has asked XYZ to support the transaction through letter of credit (as ABC wants cash to keep its cash flows smooth (please note this question is not about receivables financing).
XYZ approached its bank to issue a letter of credit in its favour and the bank has notified it that it would charge commission at the rate of 5% of the trade value to which XYZ has agreed. "
Question No.1: “Can an expert please advise what would be the journal entries from the perspective of XYZ (buyer) and ABC (seller) in proper format in case of L/C?”
Question No.2: “Can an expert please advise what would be the journal entries from the perspective of XYZ (buyer) and ABC (seller) in proper format in case of L/G (if XYZ’s bank guarantees ABC the due payment on 31st March 2012?”
I would be thankful for your kind help.
Regards,
StarShines
CAclubindia
