Accounting treatment for letter of credit under IFRS?

Question

What is the accounting treatment for letter of credit under IFRS? Do we need to record it as a liability in the balance sheet? or it is a contingent liability?

Answer 1

Accounting treatment of Letter of Credit depends on its use.

LOC is open in a bank on behalf of the buyer to make payments to the seller.Unless letter of credit is actually used it is off-balance sheet disclosure. Letter of credit is a future liability, so it is contingent on the occurrence of an event.