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.

[Surender Gupta]

For this purpose, you need to refer the Accounting Standard for revenue recognition and so.

AI Summary

Foreign exchange loss: whether exchange fluctuation on foreign currency advances must be recognised and treated as a revenue deduction. A company received a foreign currency advance credited in rupees and recorded as a current liability; rupee devaluation increased the rupee liability by the balance sheet date. The central question is whether the exchange difference must be recognised at the balance sheet date and whether any resultant exchange loss is allowable as a revenue deduction in the year of receipt, which depends on applicable accounting standards for revenue recognition and foreign currency transactions.