4.4.1 Import Mechanism:
To import, a person should be competent to be an ‘importer’. According to Import and Export (Control) Act, 1910, the officer of Chief Controller of Import and Export provides the registration (IRC) to the importer. After obtaining this, the person has to secure a letter of credit authorization (LCA) from Bangladesh Bank. And then a person becomes a qualified importer. He requests or instructs the opening bank to open an L/C.
4.4.2 Source of Finance:
Import may be allowed under the following sources of finance:
(a) Cash-
i. cash foreign exchange (balance of the foreign exchange reserve of Bangladesh Bank);
ii. Foreign currency accounts maintained by Bangladeshi Nationals working/living abroad.
(b) External economic aid.
(c) Commodity exchange.
4.4.3 Import Procedures:
An importer is required to have the following to import through DBBL---
i. Applicant has to apply for opening L/C by a prescribed form.
ii. Applicant has to submit the Letter of Indent or Letter of Proforma Invoice.
Letter of Indent: Many sellers have their agent in seller’s country. If the contract of buying is made between the buyers and the agent of the sellers then Letter of Indent is required.
Letter of Proforma Invoice: If the contract is made directly between the buyers and the sellers then Letter of Proforma Invoice is needed.
iii. Applicant has to submit IRC (Indentors Registration Certificate). It is a certificate being renewed every year. This certificate is necessary if the contract is made between the buyers and the agents of the sellers. IRC is of two types – COM and IND. COM is given for commerce purpose and IND is given for industrial purpose.
iv. Applicant has to submit LCAF (Letter of Credit Authorization Form).
v. Applicant has to submit insurance document.
vi. Applicant has to prepare FORM-IMP.
vii. Recently, there has been made a provision to give a certificate named TIN (Tax Payers Identification Number). Taxation department issues this certificate.
viii. Then after proper scrutiny bank will open an L/C.
While opening L/C, importer must keep certain percentage of the document value in the bank as margin.
4.4.4 Procedures of Opening L/C to Import:
To open an L/C, the requirements of an importer are:
a. He must have an account in DBBL.
b. He must have Importers Registration Certificate (IRC).
c. Report on past performance with other bank. DBBL collects this report from Bangladesh Bank.
d. CIB (Credit Information Bureau) report from Bangladesh Bank.
e. A proposal approved by the meeting of executive committee of the bank. It is necessary only when the L/C amount is small or there is no limit.
f. If the L/C amount is large or there is a limit, then an approval from Bangladesh Bank is needed. Usually this approval is needed for amount more than one corer
Accounting Treatment for Opening L/C:
For opening L/C, importer will apply to the issuing bank. In that case, importer is called applicant or opener. After opening an L/C bank will create a contingent liability. In that case, the accounting posting will be the following:
Customers Liability Dr.
Contingent Liability Cr.
Generally L/C is opened against some margin.
While paying the money by the issuing bank, issuing bank will reverse the above entry and the entry will be
Contingent Liability Dr.
Customers Liability Cr.
Then the issuing bank will give another entry---
Payment Against Document (PAD) Dr.
Dutch-Bangla General Account Cr.
Exchange Gain Cr.
PAD will debit because the bank will pay the money against some documents. DBBL General Account is a miscellaneous account. It will be credited because by this entry DBBL creates a liability. He has to pay the money to the advising bank. And the gain made by the transaction is shown at Exchange Gain Account.
All these entries are made after receiving some documents from the exporters. The above procedure is called Lodging.
After giving the above entry, DBBL will inform the clients for collecting the documents from the bank. Importers will pay the due to the bank and collects the documents. In that case, the entry will be ---
Party Account Dr.
PAD Account Cr.
After opening the L/C, DBBL (issuing bank) must receive the documents for any other proceedings. These documents are ---
i. Bill of Lading,
ii. Invoice,
iii. Packing List,
iv. Country of Origin.
4.4.5 Lodgment of the Documents:
After receiving the documents from the exporters, at first DBBL write it in the PAD Registrar. PAD Register contains date, PAD number, L/C number, name of the drawer, name of the drawer, amount, number of copies of various documents, name of the imported items. This written procedure is called Lodgment.
Accounting Application:
While doing lodgment, DBBL makes the following entries—
PAD Account Dr.
Dutch-Bangla General Account Cr.
Exchange Gain Account Cr.
DBBL makes the payment to the reimbursing bank against the documents. That’s why, it debts the PAD Account.
For payment, DBBL deposits the money at the miscellaneous account @17.61 (current rate). And sends an Inter Branch Credit Advice (IBCA) to credit the amount to a nostro account maintained in a bank of exporters’ country from which payment will be made. By this transaction, DBBL makes a profit @0.11 per dollar.
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