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).