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Hi Mr. MikeLittle
Can you explain me this question
237 Miston buys goods priced at €50,000 from a Dutch company on 1 November 20X8. The invoice is due for
settlement in two equal instalments on 1 December 20X8 and 1 January 20X9.
The exchange rate moved as follows:
1 November 20X8 – 1.63 to $1
1 December 20X8 – 1.61 to $1
31 December 20X8 – 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
20X8?
$ gain / (loss) (to nearest $)What figure do you have?
What figure does the answer say?
What is it about the answer that you don’t understand?
(Fyi I arrive at a figure less than $100)
Why is the title of the thread IAS 8? Shouldn’t that be IAS 21
The example in the course notes on page 153 is almost exactly the same as the details that you have given in your post!
237 $98 loss
Date Rate $ € Gain/ (loss)
1/11 1.63 30,675 50,000
1/12 1.61 (15,528) (25,000) (191)
31/12 1.64 15,244 25,000 93
(98)lossI didn’t understand anything with this answer which was given in the book
The top five lines on page 152 give you the rules:
Translate all transactions at the rate that applied on the day of the transaction
So the 50,000 purchase translates at the rate of 1.63 = $1 = $30,675
The payment is translated at the rate that applied on the day that the payment was made
So the 25,000 payment translates at the rate of 1.61 = $1 = $15,528
Finally, the amount outstanding at the year end is translated at the closing rate that obtained on 31 December
So 25,000 outstanding translates at the rate of 1.63 = $1 = $15,244
So, having bought $30,675 worth of goods, we have paid $15,528 and we still owe $15,244
That gives us an exchange loss of $97 (difference is rounding – working to the nearest cent, $97 loss is precise!)
OK?
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