QUESTION NO 12 (AS 11)

Almaz Impex Ltd. an Indian Company took a foreign currency loan of US $

5,00,000 @ 10% p.a. on 1.1.2009. Interest is payable half-yearly with an
instalment for principal of US $ 50,000. The company closes books of account
as on 31st March every year. Exchange rates are :-

1.1.2009 42.25
31.3.2009 42.50
31.6.2009 42.90
31.12.2009 43.90
31.3.2010 43.50

Prepare loan account of the company and calculate the exchange fluctuation
loss/gain for the financial year ended on 31.3.2009 and 31.3.2010 respectively.

(Ans: Loss – Rs. 1,25,000 (31.3.2009): Loss – Rs. 4,95,000 (31.3.2010)

SOLUTION

FOREIGN CURRENCY LOAN ACCOUNT (1.1.2009 – 31.3.2009)

PARTICULARS AMOUNT PARTICULARS AMOUNT
31.3.2009 1.1.2009
To balance c/d 2,17,81,250 By Bank 2,11,25,000
($500000x42.25)

31.3.2009
By Interest (3 months) 5,31,250
($500000x10%x3/12)x42.5
By Exchange Loss 1,25,000
(42.5-42.25)x500000
2,17,81,250 2,17,81,250
 FOREIGN CURRENCY LOAN ACCOUNT (1.4.2009 – 31.3.2010)
PARTICULARS AMOUNT PARTICULARS AMOUNT
30.6.2009 1.4.2009
By Balance c/d 2,17,81,250
To bank 32,17,500
(50000+12500+12500) 30.6.2009
x42.9 By interest (3 months) 5,36,250
(500000x10%x3/12)x42.9
31.12.2009 By Exchange loss:
Installment 50000
To bank 31,82,750 o/s int. 12500
(50000+22500)x43.9 (31.3.2009)
--------
31.3.2010 62500
To balance c/d 1,78,35,000 --------
(42.9-42.5)x62500 25,000

31.12.2009
By interest 9,87,750
(450000x10%x6/12)x43.9

By Exchange loss 70,000

(43.9-42.5)x50000

31.3.2010

By interest 4,35,000
(400000x10%x3/12)x43.5

By Exchange loss 4,00,000

400000x(43.5-42.5)
2,42,35,250 2,42,35,250
---------- ----------

EXCHANGE LOSS=25000+70000+400000=495000
(IF WE DONOT SHOW ENTRIES RELATING TO INTEREST IN LOAN
ACCOUNT THEN EXCHANGE LOSS WILL BE 490000 WHICH IS ALSO
CORRECT.