exchagne diff in sell of veseel

Question

If there is vessel purchased in USD (e.g 1.383) under company A - SGD currency book, while the vessel will be sold to Company B (subsidiary co - USD currency book) @ book rate 1.354. Under FRS16, shall the exchange diff be borne by  Company A or it can be billed together to Company B?

Answer 1

Foreign currency rate is difference from the time of sale and at the time of receipt of payment and therefore it causes profit and loss to us .

lets understand the concept of foreign exchange rate at the time export .

Example :

Suppose A ltd sale material of $ 1000 to to B ltd in USA on 1 Jan 15 the rate of exchange is on 1 jan is $1 =  Rs 65 .the journal entry for the same will be

B Ltd            65000

To Sale        65000

(being goods sold)

Now B ltd made the payment for the above transaction on 5 feb 15 and rate of exchange will be $1 = Rs 66

Now journal entry will be :

bank A/c Dr   66000

To B ltd        66000

(being money received form B ltd)

Now adjustment of foreign gain loss will be :

 

B Ltd    1000

To Foreign exchange gain A/c 1000

(being gain received form B ltd)

similarly in the case of foreign gain loss class in the case of loss

Suppose A ltd sale material of $ 1000 to to B ltd in USA on 1 Jan 15 the rate of exchange is on 1 jan is $1 =  Rs 65 .the journal entry for the same will be

B Ltd            65000

To Sale        65000

(being goods sold)

Now B ltd made the payment for the above transaction on 5 feb 15 and rate of exchange will be $1 = Rs 64

Now journal entry will be :

bank A/c Dr   64000

To B ltd        64000

(being money received form B ltd)

Now adjustment of foreign gain loss will be :

Forex exchange loss A/c Dr  Rs 1000

To B Ltd rs 1000

(being adjustment of foreign gain loss )

 

Journal entry of Forex exchange rate Import

Example :

Mr A ltd import 1000 NOS Digital camera from Sony USA with the rate $ 100 each on 1 April 2016. and rate of exchange on that day was   $1 = 68 dollar.

cost of camera in Indian rupees = $100000 X 68 = Rs 6800000

therefore when goods are purchase the following journal entry will be made

Purchase A/c Dr  6800000

To Sony USA        6800000

(being goods purchased from Sony USA )

On 10 April 2016 paid to Sony Ltd  $ 100000 rate of exchange on that day was $1 = Rs 65.

now on the date of payment made

100000 X 65 = 6500000

Now journal entry will be

Sony USA dr. 6500000

To Bank A/c 6500000

(being payment made to usa)

In the above two transaction we have  gain a profit of Rs 30000.

now to adjust profit following entry will be pass

Sony USA Dr 300000

To Forex exchange gain A/c Dr  Rs 300000

(being profit adjusted in forex exhange gain )

Comments

Dear Veshmalahotra

Thank you for the reply. However, our scenario as follows:-

Company A, SGD book currency, purchase vessel USD1,000,000, book as exchange rate 1.383, SGD1,383,000.

However, we decided to sell the vessel as USD1,000,000 to Company B, USD book currency. during that time, the exchange rate is 1.354.

So shall the diff of SGD29,000 (SGD1,383,000 - SGD1,354,000) be recognized under Company A or shall it be include in the billing to Company B (USD1,000,000 + SGD29,000).

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The difference between purchase value and sale value would be recorded as gain on sale of assets if its not urs normal business of selling vessals and the difference between exchange rates at time of sales and purchase would be recorded by Company A as gain/loss on exchange rates.
Now tell me what is yours functional currency according to ti i would give you accounting entry