Effects of changes in foreign exchange rates

19 December, 2015 record the purchase

Dr Purchases (Mainwaring) 80,000 GBP @ .7 $114,285.71
Dr Purchases (Cholmondley) 20,000 ZMW @ 9.23 $2,166.85
Cr Payables $116,452.56

31 December, 2015 restate at closing rate

Dr Payables (Cholmondley) 20,000 ZMW @ (9.3 – 9.23) $16.31
Cr Exchange rate difference account $16.31

No adjustment for Mainwaring – that purchase was at a fixed rate of 0.7

3 February, 2016 pay the two debts

Dr Payables (Mainwaring) $114,285.71
Dr Payables (Cholmondley) 20,000 @ 9 $2,222.22
Cr Cash $116, 507.93

There is now a balance left on the Cholmondley Payable account of ($2,166.85 – $16.31 – $2,222.22 = $71.68 representing the foreign exchange difference that has arisen so far in 2016. If there are no further foreign exchange differences arising in 2016, this amount of $71.68 will be debited to the statement of profit or loss at the end of 2016

OK?

The course notes now include the printed solution but thanks for pointing out the omission

“I thought $16.31 should have been added to payables figure of cholmondley 2166.85 i.e crediting cholmondley since the GBP exchange rate has appreciated from 9.23 to 9.3 making Numea to pay more to cholmondley”

No – the amount payable is 20,000 ZMW. At the date of purchase 20,000 ZMW was worth $2,166.85 but by the end of December 20,000 ZMW was only worth $2,150.54

“Again once we are told that the parties entered into a contracted rate of exchange we should always use that one regardless of fluctuations”

That’s exactly the consequence of a contracted fixed rate of exchange!