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To Make The Necessary Entries and Calculate The Gain or Loss
To Make The Necessary Entries and Calculate The Gain or Loss
1. Amount in GBP on Jan 1st, 2016: 8500 USD ÷ 1.3050 USD/GBP = 6511.45 GBP
2. Amount in GBP on Sept 30th, 2016: 8500 USD ÷ 1.3120 USD/GBP = 6474.66
GBP
On Jan 1st, 2016: Debit: Asset account (e.g. Investment in Foreign Currency)
for 6511.45 GBP Credit: Cash account for 8500 USD
On Sept 30th, 2016: Debit: Cash account for 8500 USD Credit: Asset account
(e.g. Investment in Foreign Currency) for 6474.66 GBP
To calculate the gain or loss, we need to compare the GBP value of the
investment on Jan 1st, 2016 to the GBP value on Sept 30th, 2016:
Gain or loss = GBP value on Sept 30th, 2016 - GBP value on Jan 1st, 2016 Gain
or loss = 6474.66 GBP - 6511.45 GBP Gain or loss = -36.79 GBP (loss)
On Oct 1st 2016 credit sales at 2500 USD Balance Sheet (Reporting Date)
December 31st 2016. Amount Received 15 Jan 2017. Exchange Rates On Oct
1st 2016 1GBP = 1.3896 USD On Dec 31st 2016 1GBP = 1.3740 USD On Jan
15th 2017 1GBP = 1.4100 USD make jornal entries also calculate FX GAIN /
LOSS ?
To make the necessary entries and calculate the FX gain/loss, we need to first
determine the amounts in GBP using the given exchange rates.
1. Credit sale amount on Oct 1st, 2016: 2500 USD ÷ 1.3896 USD/GBP = 1798.61
GBP
2. Amount received on Jan 15th, 2017: 2500 USD ÷ 1.4100 USD/GBP = 1773.76
GBP
Now, let's make the entries:
On Oct 1st, 2016: Debit: Accounts Receivable for 1798.61 GBP Credit: Sales
Revenue for 1798.61 GBP
On Dec 31st, 2016: No entries needed, as the balance sheet is only reporting
the amounts at the end of the reporting period.
On Jan 15th, 2017: Debit: Cash account for 2500 USD Credit: Accounts
Receivable for 1773.76 GBP Credit: FX gain account for 24.85 GBP (calculated
as 1773.76 GBP - 1798.61 GBP)
FX gain/loss = GBP value on Jan 15th, 2017 - GBP value on Oct 1st, 2016 FX
gain/loss = 1773.76 GBP - 1798.61 GBP FX gain/loss = -24.85 GBP (loss)
Jones Inc. has its functional currency as the $USD. It trades with several
suppliers overseas and bought goods costing 400,000 Dinar on 1 December
2015. Jones paid for the goods on 10 January 2016. Jones’s year-end is 31
December. The exchange rates were as follows: 1 December 2015 4.1 Dinar :
$1USD 31 December 2015 4.3 Dinar : $1USD 10 January 2016 4.4 Dinar :
$1USD Show how the transaction would be recorded in Jones’s financial
statements.
Since Jones Inc.'s functional currency is USD, the transaction needs to be
converted to USD for recording in its financial statements. To do this, we need
to use the exchange rates provided.
On January 10, 2016: Debit: Accounts Payable for $90,909 USD Debit: FX loss
account for $2,614 USD (calculated as $93,023 USD - $90,909 USD) Credit:
Cash account for $93,023 USD
Note that the FX loss account is used to record the difference between the
USD amount owed at the time of purchase and the USD amount paid at the
time of payment due to the change in exchange rates.
On December 31, 2015: Debit: Property, Plant and Equipment for $6.09 million
USD (increase in carrying amount due to revaluation) Credit: Revaluation
Surplus for $6.09 million USD (gain recorded in equity)
On April 1st 2020 Credit Purchase 5,500 USD On Oct 1st 2020 Credit Sales
2,500 USD 50% Payment made to Payable On Sept 1st 2020. Reporting Date
December 31st 2020. Cash Received On January 15th 2021. Exchange Rates
1st April 2020 1GBP = 1.2510 USD 1st Sept 2020 1GBP = 1.2610 USD 1st Oct
2020 1GBP = 1.2590 USD 31st Dec 2020 1GBP = 1.2710 USD 15th Jan 2021
1GBP = 1.2900 USD
To record the above transactions and calculate the FX gain/loss, the following
journal entries need to be made:
On April 1st, 2020: Debit: Purchases for 4,394.08 GBP ($5,500 USD ÷ 1.2510)
Credit: Accounts Payable for 4,394.08 GBP
On Sept 1st, 2020: Debit: Accounts Payable for 2,197.04 GBP (50% of $5,500
USD ÷ 1.2610) Credit: Cash for 2,197.04 GBP
On Oct 1st, 2020: Debit: Accounts Receivable for 1,986.35 GBP ($2,500 USD ÷
1.2590) Credit: Sales for 1,986.35 GBP
On Dec 31st, 2020: Debit: Unrealized Foreign Exchange Gain for 70.43 GBP
[(4,394.08 GBP - 4,394.08 GBP * 1.2590 / 1.2510) - (1,986.35 GBP - 1,986.35
GBP * 1.2710 / 1.2590)] Credit: Foreign Currency Translation Reserve for 70.43
GBP
Note: The above entry records the unrealized gain/loss as of the reporting
date (Dec 31st, 2020) due to the fluctuation in exchange rates from the
transaction date (April 1st, 2020) to the reporting date.
On Jan 15th, 2021: Debit: Cash for 1,543.11 GBP ($2,000 USD ÷ 1.2900) Debit:
Realized Foreign Exchange Gain for 50.51 GBP [(1,986.35 GBP * 1.2900) -
$2,500 USD] Credit: Accounts Receivable for 1,986.35 GBP
Note: The above entry records the realized gain/loss due to the exchange rate
fluctuation between the date of the credit sale (Oct 1st, 2020) and the date of
cash receipt (Jan 15th, 2021).
Overall, the FX gain for the period is 70.43 GBP + 50.51 GBP = 120.94 GBP.