Page 110 - IC26 LIFE INSURANCE FINANCE

Treatment of Exchange Difference

Exchange difference arises because of:

 A transaction being reported at a rate different from the rate at which it was

initially recorded.

 A transaction being settled at a rate different from the rate at which it was

initially recorded.

 A transaction being settled at a rate different from the one taken for the reporting

in the last financial statement.

Exchange differences are recognised as income or expenses in the period in which they

arise.

Example 1: A & Co. had the following transaction in US$ on 01.03.05:

1) Imported 40 units of certain goods @ $50 per unit. Payment due on 31.05.05.

2) Exported certain goods to USA for $250 on three months credit.

Show accounting entries to record the above transaction on 01.03.05. The rate of exchange

on the date was Rs 40/$.

Example 2: Using data of example 1. Show accounting entries on 31.03.05 and 31.05.05,

given that the rate of exchange on 31.03.05 and 31.05.05 are Rs 40.40 and 40.60

respectively.

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