03-07-2007, 03:31 PM
A very nice and technical query after quite a long time...
First of all i donot agree with ur saying that, the sole reason for arising of exchange gain/loss is foreign sale, and hence should be a part of revenue.
Here are the arguments against it...
a)matching concept; as per the matching concept, you must match revenue with cost and cost with revenue. Here, if u recognize exchange gain as revenue, what matching cost do u have? So, as per matching concept, all the gains for which we have no related costs are incidental incomes and hence treated as other income and not revenue.
b)When u r recognizing revenue under accrual basis as per IAS 18, u will in most cases recognize revenue before receipt of income. Now if u add the exchange gain to it, it will mount to cash basis. And secondly, as export companies have heavy amounts of debtors, what will u do to account for the exchange gain that will arise in next period out of those debtors. Of course u cannot provide an accrual for exchange gain, as it is not prudent.
c)Thirdly, if there is an exchange loss, u will probably reduce that amount from revenue under ur suggested treatment. In this case, it will mount to netting off of income and expense, which is also not allowed....
So, as per the basic concepts of IAS, this treatment is not suitable....
the only thing u can do is to negotiate with the tax authorities or contact a professional firm who can give u advice in this case...
Im sure that a professional firm will draft ur returns in such a way that, ur other income will come under the PTR and u will not be taxed twice...
I will also ask the personnel of our tax department, as they must have dealt this kind of case before...
First of all i donot agree with ur saying that, the sole reason for arising of exchange gain/loss is foreign sale, and hence should be a part of revenue.
Here are the arguments against it...
a)matching concept; as per the matching concept, you must match revenue with cost and cost with revenue. Here, if u recognize exchange gain as revenue, what matching cost do u have? So, as per matching concept, all the gains for which we have no related costs are incidental incomes and hence treated as other income and not revenue.
b)When u r recognizing revenue under accrual basis as per IAS 18, u will in most cases recognize revenue before receipt of income. Now if u add the exchange gain to it, it will mount to cash basis. And secondly, as export companies have heavy amounts of debtors, what will u do to account for the exchange gain that will arise in next period out of those debtors. Of course u cannot provide an accrual for exchange gain, as it is not prudent.
c)Thirdly, if there is an exchange loss, u will probably reduce that amount from revenue under ur suggested treatment. In this case, it will mount to netting off of income and expense, which is also not allowed....
So, as per the basic concepts of IAS, this treatment is not suitable....
the only thing u can do is to negotiate with the tax authorities or contact a professional firm who can give u advice in this case...
Im sure that a professional firm will draft ur returns in such a way that, ur other income will come under the PTR and u will not be taxed twice...
I will also ask the personnel of our tax department, as they must have dealt this kind of case before...
