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Hi, hope you are well……
could you please help me out?Beth had contracted to purchase an item of plant and equipment for 12 million euros on the following terms:
Payable on signing contract (1 September 2007) 50
Payable on delivery and installation (11 December 2007) 50%
The amount payable on signing the contract (the deposit) was paid on the due date and is refundable. The
following exchange rates are relevant:
2007 Euros to 1 dollar
1 September 0·75
30 November 0·85
11 December 0·79
The deposit is included in trade receivables at the rate of exchange on 1 September 2007. A full year’s charge
for depreciation of property, plant and equipment is made in the year of acquisition using the straight line method
over six years.I need to know, the solution has only reversed the loss that arose due to the retranslation of the amount..I’m missing something, the question says the deposit is included in the receivables and is refunadable, is that why they haven’t reversed the whole amount because $12m *50% = $6m is a receivable too??
Thank you in advance..
Hi
Surely the only amount so far paid (the refundable deposit) is the only amount included in the receivables. The remainder of the 12 million Euros has not yet become payable and is not therefore included in receivables. It isn’t even a receivable surely! It’s an amount which will become payable on 11 December ……. unless Beth changes their mind, cancels the contract and asks for repayment of their refundable deposit
Ok?
I am not getting it? :/ why haven’t they reversed the whole amount that’s 50% of $12m instead of reversing the retranslation loss?
Please help..
Peace, I haven’t got the question in front of me but the translation as at the year end is surely only the amount which is included within receivables. When the 6 million was entered into the receivables as a refundable deposit, that’s a monetary asset and monetary assets and liabilities are translated as at the year end.
Why would you want to reverse out the entire receivable – unless Beth is canceling the contract and asking for the repayment of the refundable deposit. If the contract is going ahead, the deposit is paid, is outstanding at the year end so is translated at the closing rate giving rise to gain or loss on translation and the balance is then paid in December. When 11 December comes along, we know we have paid half the amount due. The other 6 million is now payable. But the rate of exchange is changed. When we pay the final element, the equivalent of 12 million should have been received by the supplier. That may involve us in paying a surplus because of the exchange movement but still the supplier wants 12 million.
I’m not sure that I have understood your question and cannot help feeling that I still haven’t answered it.
When I get a moment, I’ll get hold of a December 2007 exam from the Internet and check out what your problem is.
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