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Helo Sir,
Q2 Why are we deducting Exchange rate from the cost of sale and not adding it as the new exchange rate is 1.5V$?
Thank you.
Framiltone imports material from Veeland. As teh question says:
The exchange rate between the Ceeland Dollar (C$) and the Veeland Dollar (V$) is predicted to change at the beginning of Q2 to C$1·00 buys V$1·50. For several years up to the end of Q1, C$1·00 has been equivalent to V$1·40 and this exchange rate has been used when producing the current year budget.
So, if the company were,say, importing goods that had cost V$1000, these had been included in the budget at a cost of 1000/1.4 = C$714. However, the exchange rate will change to 1.5, in which case the cost of the goods being imported would be 1000/1.5 = 667.
So, because the V$ has weakened, the cost in C$ has decreased and the cost of sales should be adjusted by making a deduction.
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