Question

Shelton Corporation is an international dealer in jewelry and engages in numerous import and export activities. Shelton’s receivables and payables in foreign currency units before year end adjustments on December 31, 2017 are summarized as follows:

Foreign            Currency          Rate on Date                Current Rate            Rate at Settlement

Currency          Units                of Transaction             on 12/31/17      in 2018

Accounts Receivable

British Pds       100,000             1.5300                           $1.6600             $ 1.595

Euros               90,000               .8600                            .8400                     .790     

Krona              120,000             .6600                            .6400                   .685

Yen                  3,200,000          .0066                            .0076                     .0078

Accounts Payable

Canadian $       150,000             .7700                            .6900                   .723

Pesos               220,000             .1520                             .1350                     .138

Yen                  4,500,000          .0071                             .0076                   .0080

REQUIRED:

1. Determine the amount at which the receivables and payables should be reported in Shelton’s December 31, 2017 balance sheet.

2. Calculate gains and losses that should appear in Shelton’s 2017 and 2018 income statements.

Answer 1

Foreign	Currency	Rate on	Current Rate	Rate at	Value on	Value at	Value at	Gain/loss	Gain/loss
Currency	Units	date of	on 12/31/17	Settlement	date of	Current rate	Settlement	Curret rate	Current rate
		Transaction		in 2018	Transaction	on 12/31/17	in 2018	on 12/31/17	on 12/31/17
	1	2	3	4	5	6	7	8	9
					( 1 x 2)	( 1 X 3)	( 1 X 4)	( 5-6)	(6 - 7)
Accounts Receivable
British Pds	1,00,000	1.5300	1.6600	1.5950	153000	1,66,000	1,59,500	-13,000	6,500
Euros	90,000	0.8600	0.8400	0.7900	77400	75,600	71,100	1,800	4,500
Krona	1,20,000	0.6600	0.6400	0.6850	79200	76,800	82,200	2,400	-5,400
Yen	32,00,000	0.0066	0.0076	0.0078	21120	24,320	24,960	-3,200	-640
TOTAL Receivables	35,10,000				3,30,720	3,42,720	3,37,760	-12,000	4,960
Accounts Payable
Canadian $	1,50,000	0.7700	0.6900	0.7230	115500	103500	108450	12000	-4950
Pesos	2,20,000	0.1520	0.1350	0.1380	33440	29700	30360	3740	-660
Yen	45,00,000	0.0071	0.0076	0.0080	31950	34200	36000	-2250	-1800
TOTAL Payables	48,70,000				1,80,890	1,67,400	1,74,810	13,490	-7,410
NET GAIN/LOSS								1,490	-2,450
(Accounts Receivables - Accounts Payables)
Calculations
Value on date of transaction = Currency Units X Rate on date of transaction
Value on current rate as on 31.12.2017 = Currenty Units X current rate on 31.12.2017
Value at Settlement in 2018 = Currenty units X Rate at settlement
NOTE :
As per Acounting standards
1) A foreign currenty transaction must be recorded on initial recognition in reporting currency, by applying the exchange rate
between the foreign currency and the reporting currency to the foreign currency amount at the date of the transaction
2) All the foreign currency monetary items must be reported at the closing rate on the date of financial statement.
3) Exchange differences which arise on reporting the enterprise’s monetary items at the rates different
from the ones at which they’re recorded initially must be recognized as income or as an expense.