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foriegn exchange rate

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FR Exams › foriegn exchange rate

  • This topic has 1 reply, 2 voices, and was last updated 8 years ago by MikeLittle.
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  • Author
    Posts
  • May 20, 2017 at 7:05 pm #387152
    kengara
    Member
    • Topics: 197
    • Replies: 107
    • ☆☆☆

    Hi Mr Mike, I have a question

    inventory purchased 286000
    exchange rates:25 october 11.16$,16 November 10.8$ and 31 December 11.02$

    Workings
    25 october

    286000/11.16=25627

    Debit inventory 25627
    credit trade payable -25627

    16 november

    286000/10.87=26311

    26311-25627=684

    debit expense-684
    credit trade payable-684

    debit expense-684
    debit trade payable -25627
    credit cash-26311

    31 december
    286000/11.02=25953

    25627-25953=326

    debit expense-326
    debit trade payable-326

    debit expense-326
    debit trade payable-25627
    credit cash-25953

    let us assume another example which also has been taken from Bpp test bank page number 69

    MIston buys priced at 50000euro from a Dutch company on 1 november 20×8.The invoice is due for settlement in two equal installments on 1 december 20×8 and 1 january 20×9

    Exchange rate

    1november 20×8-1.63 to 1 $
    1 december 20×8-1.61 to 1$
    31 december 20×8-1.64 to 1 $

    what will be the net exchange gain or loss to be reported in the financial statements of Miston at 31 december 20×8

    Solution
    1 November 20×8

    50000/1.65=30675-understood this part

    debit purchase-30675
    credit trade payable-30675

    1 december
    25000/1.61=15528

    we got 25000 due to two equal installments 50000/2=25000?

    loss 191 recognised why 191?

    31 december

    25000/1.64=15244

    gain 93 why?

    overall 98 loss

    could u explain it to me please?

    May 20, 2017 at 7:58 pm #387165
    MikeLittle
    Keymaster
    • Topics: 27
    • Replies: 23311
    • ☆☆☆☆☆

    “50000/1.65=30675-understood this part”

    I don’t see how you could have understood this part because 50,000 euros at 1.65 = $1 does NOT equal $30,675! It equals $30,303

    However, the exchange rate that you should have used is 1.63 to $1 and that does equal $30,675

    The 50,000 euros at 1.63 to $1 = $30,675

    Now view this figure as two equal halves of $15,337.50 each

    Half that debt is paid off on 1 December when the exchange rate was 1.61 = $1 so 25,000 euros at 1.61 = $15,527.95 so that’s a loss of $190.45 when compared with the $15,337.50 from above

    the second half is ready for payment ‘tomorrow’ – 1 January

    At 31 December the exchange rate was 1.64 so 25,000 euros at 1.64 = $15,243.90 and that represents a gain of $93.60 when compared with the $15,337.50 from above

    OK now?

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