03-26-2009, 12:06 AM
Shehzad,
It appears that neither the purchase is made in rupee nor the payment is made in rupee. Only one currency (functional currency/reporting currency) i.e. USD is in use for all purposes.
Therefore, in my view second option is correct.
The exchange losses are recognised where some transaction is actually made in other than functional curreny but translated into functional currency for reporting purposes or converted into functional currency for receiving or paying the cash.
Regards,
KAMRAN.