Reliance ltd. purchased a construction company in Saudi Arabia, where will this entry be recorded in the balance of payment account?
Answer & explanation
Correct answer: option 1
The correct answer is option 1:It will be recorded on the debit side of capital account
- The Balance of Payments (BoP) consists of the Current Account (which records trade in goods and services) and the Capital Account and Financial Account (which records investments and financial transactions).
- When Reliance Ltd. purchases a construction company in Saudi Arabia, it is considered a foreign direct investment (FDI) outflow from India because Indian money is being sent abroad to acquire assets.
- Outflows of money from the country are recorded on the debit side of the Capital Account in the Balance of Payments.