Payment Scenarios
The following scenarios indicate how foreign exchange gain or loss is calculated for payments which are matched against bills:
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Scenario 1 — Payment Freeze Date = Bill Completion Date; Payment Amount = Invoice Amount
Bill Completion Date (01–01–2001) Payment Freeze Date (01–01–2001) Exchange Rate From USD USD Exchange Rate To INR INR Exchange Rate 50 50 Invoice/Payment Currency USD USD Invoice Amount 1000 - Base Currency INR INR Booked Revenue in Base Currency 1000*50 = 50000 - Payment Amount - 1000 Payment Amount in Base Currency on Bill Completion Date - 1000*50 = 50000 Realized Revenue (Payment Amount) in Base Currency on Payment Freeze Date - 1000*50 = 50000 Foreign Exchange Gain or Loss - Not applicable Observation: In the Scenario 1, the foreign exchange gain or loss is not applicable because Bill Completion Date and Payment Freeze Date are same.
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Scenario 2 — Payment Freeze Date Not Equal to Bill Completion Date; Exchange Rate is Same; Payment Amount = Invoice Amount
Bill Completion Date (01–01–2001) Payment Freeze Date (01–02–2001) Exchange Rate From USD USD Exchange Rate To INR INR Exchange Rate 50 50 Invoice/Payment Currency USD USD Invoice Amount 1000 - Base Currency INR INR Booked Revenue in Base Currency 1000*50 = 50000 - Payment Amount - 1000 Payment Amount in Base Currency on Bill Completion Date - 1000*50 = 50000 Realized Revenue (Payment Amount) in Base Currency on Payment Freeze Date - 1000*50 = 50000 Foreign Exchange Gain or Loss - 50000–50000 = 0 Observation: In the Scenario 2, there is no foreign exchange gain or loss because the exchange rate is same on the Bill Completion Date and Payment Freeze Date.
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Scenario 3 — Payment Freeze Date Not Equal to Bill Completion Date; Exchange Rate is Different; Payment Amount = Invoice Amount
Bill Completion Date (01–01–2001) Payment Freeze Date (01–02–2001) Exchange Rate From USD USD Exchange Rate To INR INR Exchange Rate 50 51 Invoice/Payment Currency USD USD Invoice Amount 1000 - Base Currency INR INR Booked Revenue in Base Currency 1000*50 = 50000 - Payment Amount - 1000 Payment Amount in Base Currency on Bill Completion Date - 1000*50 = 50000 Realized Revenue (Payment Amount) in Base Currency on Payment Freeze Date - 1000*51 = 51000 Foreign Exchange Gain or Loss - 50000-51000 = –1000 Observation: In the Scenario 3, there is foreign exchange gain of 1000 INR on 01–02–2001 because of difference in exchange rate.
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Scenario 4 — Payment Freeze Date Not Equal to Bill Completion Date; Exchange Rate is Same; Partial Payments; Total Payment Amount = Invoice Amount
Bill Completion Date (01–01–2001) First Partial Payment Freeze Date (01–02–2001) Second Partial Payment Freeze Date (01–03–2001) Exchange Rate From USD USD USD Exchange Rate To INR INR INR Exchange Rate 50 50 50 Invoice/Payment Currency USD USD USD Invoice Amount 1000 - - Base Currency INR INR INR Booked Revenue in Base Currency 1000*50 = 50000 - - Payment Amount - 500 500 Payment Amount in Base Currency on Bill Completion Date - 500*50 = 25000 500*50 = 25000 Realized Revenue (Payment Amount) in Base Currency on Payment Freeze Date - 500*50 = 25000 500*50 = 25000 Foreign Exchange Gain or Loss - 25000–25000 = 0 25000–25000 = 0 Observation: In the Scenario 4, there is no foreign exchange gain or loss because the exchange rate is same on the Bill Completion Date and Payment Freeze Date.
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Scenario 5 — Payment Freeze Date Not Equal to Bill Completion Date; Exchange Rate is Different; Partial Payments; Total Payment Amount = Invoice Amount
Bill Completion Date (01–01–2001) First Partial Payment Freeze Date (01–02–2001) Second Partial Payment Freeze Date (01–03–2001) Exchange Rate From USD USD USD Exchange Rate To INR INR INR Exchange Rate 50 51 48 Invoice/Payment Currency USD USD USD Invoice Amount 1000 - - Base Currency INR INR INR Booked Revenue in Base Currency 1000*50 = 50000 - - Payment Amount - 800 200 Payment Amount in Base Currency on Bill Completion Date - 800*50 = 40000 200*50 = 10000 Realized Revenue (Payment Amount) in Base Currency on Payment Freeze Date - 800*51 = 40800 200*48 = 9600 Foreign Exchange Gain or Loss - 40000-40800 = –800 10000–9600 = 400 Observation: In the Scenario 5, there is foreign exchange gain of 800 INR on 01–02–2001 and foreign exchange loss of 400 INR on 01–03–2001.
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Scenario 6 — Payment Freeze Date Not Equal to Bill Completion Date; Exchange Rate is Different; Payment Amount > Invoice Amount (i.e. Overpayment)
Bill Completion Date (01–01–2001) Payment Freeze Date (01–02–2001) Exchange Rate From USD USD Exchange Rate To INR INR Exchange Rate 50 49 Invoice/Payment Currency USD USD Invoice Amount 1000 - Base Currency INR INR Booked Revenue in Base Currency 1000*50 = 50000 - Payment Amount - 1200 Payment Amount in Base Currency on Bill Completion Date - 1000*50 = 50000 Realized Revenue (Payment Amount) in Base Currency on Payment Freeze Date - 1000*49 = 49000 Foreign Exchange Gain or Loss - 50000–49000 = 1000 Observation: In the Scenario 6, there is foreign exchange loss of 1000 INR on 01–02–2001 because of difference in exchange rate. Note that the foreign exchange gain or loss is not calculated on the overpayment amount (i.e. 200 USD).
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Scenario 7 — Payment Freeze Date Not Equal to Bill Completion Date; Exchange Rate is Different; Partial Payments; Total Payment Amount > Invoice Amount (i.e. Overpayment)
Bill Completion Date (01–01–2001) First Partial Payment Freeze Date (01–02–2001) Second Partial Payment Freeze Date (01–03–2001) Exchange Rate From USD USD USD Exchange Rate To INR INR INR Exchange Rate 50 49 52 Invoice/Payment Currency USD USD USD Invoice Amount 1000 - - Base Currency INR INR INR Booked Revenue in Base Currency 1000*50 = 50000 - - Payment Amount - 800 400 Payment Amount in Base Currency on Bill Completion Date - 800*50 = 40000 200*50 = 10000 Realized Revenue (Payment Amount) in Base Currency on Payment Freeze Date - 800*49 = 39200 200*52 = 10400 Foreign Exchange Gain or Loss - 40000–39200 = 800 10000-10400 = –400 Observation: In the Scenario 7, there is foreign exchange loss of 800 INR on 01–02–2001 and foreign exchange gain of 400 INR on 01–03–2001. Note that the foreign exchange gain or loss is not calculated on the overpayment amount (i.e. 200 USD).