Foreign exchange loss

[SURENDRA JOSHI]

A co. received advance in USD from its foreign customer during the previous year. The said advance in reflected in the balance sheet ( Curr.Liab.) as Advance from customer. The said amount is credited in the bank account in INR. As on the date of Balance Sheet,as a result of exchange fluctuations, the liability to the customer increases with devaluation in rupees. Whether such Exchange loss should be accounted in the books as on the date of balance sheet and whether such exchange loss will be allowed as a revenue loss in the year of receipt. The said advance is cleared in the suceeding year by supply of material.

AI Summary

Exchange Loss on Foreign Advance: Recognize at Balance Sheet Date? Consult Accounting Standard for Revenue Recognition Guidance. A company received an advance in USD from a foreign customer, recorded as a current liability in its balance sheet. Due to exchange rate fluctuations, the liability increased when converted to INR. The query concerns whether this exchange loss should be recognized in the books as of the balance sheet date and if it qualifies as a revenue loss for tax purposes in the year of receipt. The advance was settled in the following year through material supply. The response suggests consulting the relevant Accounting Standard for guidance on revenue recognition.