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unrealised and realised forex gain or loss account

Former Member
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hi,

1) may i know why unrealised forex gain or loss account is P&L?

it is UNrealised why in p&l?

2)what about realised forex gain or loss? also p&l. so why unrealised also p&l as not recognised yet.

thanks

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Answers (1)

Answers (1)

Former Member
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Hi,

Let me explin by an example.

Lets assume you hae taken a loan of 10000 USD on 01.01.2008 when 1$=35 INr The loan value in Local Currency is 3,50,000/-.

On 02.02.2008 when you repaid paid part of teh loan say $2000 whdn 1 $ = 40INr then the value in local currency is 80,000/- teh loan out standing in USD is 8000 USd and in LC is 2,70,00/-. At this juncture if you represent the 1$ = 270000/8000 i.e. 33.75 Inr which is wrong. The diffrence of Rs.5 (35-40) multipied by teh loan amount 2000 USD i.e 10000 INR is called Realsied Loss on Forex.

By doing a period end process of Revaluation you are revaluating the Local Currency liability to show your financial Statements tru & Fair view. The Difference bwing Loss is Debited to P & L and Adjusted to the Loan Account.

Now the loan account in Local Currency liability is 2,80,000 IN and the Value of $8000 = 2,80,000/-.

The above is also incorrect as we have the 1%=35 Inr.

The Balance outstanding 8000 USD need to be revalued to the current value of $ i,e 8000 * (40-35) = 40000.

This is unrealised loss. By running the forex val at th period end, the system posts to a Balance sheet adjustement and to a P&L account which is shown in P&L account as Unrealised Loss.

You need to take this in to a seperate B/s Adjustment account as this will be adhusted at the time of repaying the loan next time.

Hope you understood the concept.

Reward If useful.

Sarma

Former Member
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hi,

thanks for your example but i confused of your example.

1 in your example, there will have both unrealised and realised?

on 2/2/08, i paid the loan. due to change of ex rate, there is a foreign loss need to report in realised loss account. so why need to have unrealised?

2 also, when i paid the loan on 2/2/08, there is a foreign loss. what is the use of the adjustment account here?

thanks

Former Member
0 Kudos

Unrealised part will come at the period end and i.e on 28.08.2008 not on 2/02/2008 to refelect the financial statements true & Fair.

When you paid the loan the difference in exchange rates is the loss which is shwn in Realised Gl accounts.

When at the period end if you see your liability in LC in my example it shows 8000$ @ 35/- which is wrong.

Lets say if you are paying this loan on 15/03/2008.

Then at the period end on 28/02/2008 when you revaluate your forx the 8000$ @ 5/- will be shown in a Adjsutment account only to show the B/s in a tru & Fair view.

This is reversed automatically on the start of the next period. (You need to cehck the Reverse postings check box)

When you actually pay the amount on 15/03/2008 actual realised loss is booked.

Hope you understood.

Reward points if useful.

Sarma