Respuesta :
Answer:
a. It results in a gain on foreign exchange of $1,200
b. It results in a loss on foreign exchange of $500
Explanation:
The accounting standard related to foreign exchange is IAS 21 and it requires that financial assets and liabilities in the balance sheet are recognized at the spot rate and revalued at year end using the closing rate with the difference between the amounts at transaction date and year end recognized as a gain/loss in the income statement.
Since the item was purchased on account, the inventory is not a financial asset and will thus not be revalued. However, the accounts payable will be revalued.
The entries posted on purchase would have been debit inventory and credit accounts payable.
On November 1, 2017
1 markka = $0.754
100,000 markka = $75,400
when the rate changes to $0.742,
100,000 markka = $74,200
The difference
= $75,400 - $74,200
= $1,200
There has been a reduction in the liability by this difference hence
Debit Accounts payable $1,200
Credit Foreign exchange gain $1,200
January 15, 2018 where the rate becomes $0.747,
100,000 markka = $74,700
The difference then becomes
= $74,200 - $74,700
= ($500)
This is an increase in the liability hence
Debit Foreign exchange loss $500
Credit Accounts payable $500
Answer:
- credit foreign exchange gain = $1200
- debit foreign exchange gain = $500
Explanation:
Turbo corporation acquiring a merchandise on account from a foreign supplier means that Turbo will have to pay for goods purchased in foreign currency at the prevailing exchange rate. and such transaction will be recorded as debit inventory and credit accounts payable
amount of markkas bought = 100000
A) how does the fluctuation in exchange rate affect 2017 income statement
exchange rates for 2017:
November 1 , 2017 = $0.754
December 31, 2017 = $0.742
for November 1 2017 = 100000 * 0.754 = $75400
for December 31 2017 = 100000 * 0.742 = $74200
the difference would be = ( $75400 - $74200 ) = $1200
in the income statement it will be recorded as credit foreign exchange gain= $1200 and debit accounts payable = $1200 because their was reduction in liability ( foreign exchange rate )
B ) how does the fluctuation affect 2018 income statement
December 31, 2017 = $0.754
January 15, 2018 = $0.747
for December 31, 2017 = 100000 * 0.742 = $74200
for January 15, 2018 = 100000 * 0.747 = $74700
difference = ( $74200 - $74700 ) = - $500
this is an increase in liability because the exchange rate increased between December 31 2017 to January 15 2018
this will be recorded as Debit foreign exchange loss $500 and credit accounts payable$500
