forex cancellation


My query is , what is the accounting entry supposedly passed for forex cancellation? For cancellation -- I am doing 'cash settlement'.

Currently, for accounting symbol(currency swap) I have assigned an expense account.

So right now the entry being passed is

Cancellation Expense Dr./Cr.

Bank Cr./Dr.

Forex Position Dr./Cr.

Bank Cr./Dr.

The amount is the differential inflow/outflow amount in payment currency (based on the spot rate for cancellation).

Now the requirement is , on cancellation-- differential amount and some nominal bank charges entries are passed in the book of accounts.

Is the above listed entries correct? If not, what are the standard entries? How do I take care of the additional charges being posted?


Edited by: Sur Mits on Dec 7, 2009 9:33 AM



The premature settlement functionality you are using is correct. The point is for the forward cover suppose the contract date was 20 Jan 2010 and you want to cancel it now, then when you do a premature settlement, then a transaction exactly as opposite to the original forward with same date is generated. Hence when you post these 2 on 20 Jan there will essentially be no gain or loss.

Other than these 2 there is a spot transaction with value date 2 days from today is created. This is what you are going to settle on value date through cash. This transaction you can enter the spot rate and in the liquidity you have to enter the difference between the original contract rate and the spot rate. Thus this contract would be cash settled.

Like you said you can directly do a cash settlement for the original forward itself, but in that case there is no record for the original contract terms. Now in this case if you look at the initial forward option in ftr_edit, under environment object links, you can see the connection between all the 3 contracts.



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