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Hi Mike,
Pleases see question below:Barlow, which has the dollar ($) as its functional currency, sold goods to an entity in ZedLand on 1
January 20X8, for 1.5 million Dinars. On 30 June 20X8 the customer paid for the goods in full.
Exchange rates are as follows:Dinars:$1
1 January 20X8 1.8
30 June 20X8 1.6
Average rate for six months from
1 January to 30 June
20X8 1.75Can you let me know under which circumstance, Average rate for six months would be used.
Many thanks
For the purposes of translating multiple transactions that occur on average, at a standard frequency and value throughout the year
Ideally every transaction ever conducted in a foreign currency would be translated at the rate that obtained on the date of that transaction.
Now, pause for a moment and think of the many multi-national groups each of them having to translate every transaction at the rate that obtained on each day!
Impossible! Impracticable! And so an average rate is acceptable so long as there are no circumstances to suggest that the average rate is not representative (devaluation, revaluation, hyper-inflationary)
OK?
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