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Imagine a situation, you have prepayment for inventory amounting 100$, at the time of cash transfer the exchange rate was 1 $ = 0.8 GBP, now when the inventory has been delivered to us the exchange rate is 1$=0.7 GBP, and I would like to know which amount will be the cost of inventory: 80 GBP or 70 GBP. The functional currency of the compnay is GBP.
Thank youFollowing the conversion rules, all assets and liabilities as at the year end are restated as at closing rate. Therefore, your closing inventory should be stated at 70 GBP. If it’s NOT at the year end, then there’s no need to be valuing your inventory anyway and if it’s sold therefore before your year end an amount of 80 GBP will automatically be included in “Purchases” and therefore in “Cost of sales”
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