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FOREIGN EXCHANGE

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FR Exams › FOREIGN EXCHANGE

  • This topic has 1 reply, 2 voices, and was last updated 11 months ago by P2-D2.
Viewing 2 posts - 1 through 2 (of 2 total)
  • Author
    Posts
  • July 10, 2021 at 10:55 am #627354
    shaunak22
    • Topics: 195
    • Replies: 32
    • ☆☆☆

    QUESTION
    On 1 January 20X6 Wilkie Co, a company that uses the dollar ($) as its
    functional currency, buys goods from an overseas supplier, who uses
    Dinar (D) as its functional currency. The goods are priced at D35,000.
    Payment is still outstanding at the reporting date of 31 March 20X6.
    The prevailing exchange rates are:
    1 January 20X6 D1.75 : $1
    31 March 20X6 D1.90 : $1

    ANSWER
    Initial transaction
    Translate at historic rate on 1 January 20X6, D35,000/1.75 = $20,000
    Dr Purchases $20,000
    Cr Payables $20,000

    At the reporting date
    Payables are monetary items, so retranslate at the closing rate on
    31 March 20X6, reducing the payables balance to D35,000/1.90 =
    $18,421 and recognising a gain of $1,579 ($20,000 – $18,421) in the
    SPL.
    Dr Payables $1,579
    Cr SPL Exchange gain $1,579

    DOUBT – In the above solution we have recored the payables at the closing rate and gain of 1579 is recorded and trasferred to PNL is isn’t this treatment wrong since the gain is unrealized it should be transferred to OCI and not to PNL ??

    July 14, 2021 at 8:13 pm #627748
    P2-D2
    Keymaster
    • Topics: 4
    • Replies: 6115
    • ☆☆☆☆☆

    No, it is correct. All gains/losses on translation of foreign currency for monetary items are recognised through profit or loss.

    Thanks

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