Question

Dale plc is a UK company which has the Pound Sterling as its functional currency. The company has the following transactions in Euros during the year to 31 December 2010 – the financial years is from 1 January-31 December

1 October 2010- Inventory costing 50,000 Euros purchased on credit from Y

1 November 2010- Equipment costing 200,000 Euros purchased on credit from X and signed a note payable

30 November 2010-Paid Y 30,000 Euros on account for the inventory bought on 1 October

15 December 2010- Paid X 150,000 Euros for the equipment purchased on 1 November.

Exchange rates may be assumed as follows:

1 October 2010- 1 Pound= 3.0 Euro

1 November 2010- 1 Pound = 2.80 Euro

30 November 2010- 1 Pound= 2.50 Euro

15 December 2010- 1 Pound= 2.40 Euro

31 December 2010- 1 Pound = 2.20 Euro

Required:

1. Record the journal entries for the transactions above
2. Record the entries at the reporting date 31 December 2010

Based on the entries above also, find

1. The exchange/gain loss recognized in the books of Dale on 30 November 2010
2. The exchange/gain loss recognized in the books of Dale on 15 December 2010
3. The exchange gain/loss on retranslating the monetary liability Accounts Payable for Y on the reporting date of 31 December 2010
4. The exchange gain/loss on retranslating the monetary liability Note Payable for X on the reporting date of 31 December 2010
5. The exchange gain/loss on retranslating all the monetary items on the reporting date of 31 December 2010
6. The Total exchange gain/loss that is reported in the income statement of Dale Plc Company for year ended 31 December 2010

Answer 1

                                                                  In the books of Dale Inc.

                                                                         Journal entries

                                                                                                                                                                 (In £)

Date	Particulars	Debit	Credit
2010
Oct 1	Purchases A/C Dr.	16,667
	To Y ( Trade Creditor) A/C		16,667
	(Being Inventory costing 50,000 Euros purchased on credit from Y converted at the spot rate) (€ 50,000/€ 3)
Nov 1	Equipment A/C    Dr.	71,429
	To X (Creditor) A/C		71,429
	(Being equipment costing 200,000 Euros purchased on credit from X converted at the spot rate and signed a note payable) (€ 200,000/ € 2.80)
Nov 30	Y ( Trade Creditor) A/C (€30,000/€3) Dr.	10,000
	Foreign Exchange Fluctuation A/C (B/F) Dr.	2,000
	To Bank A/C (€30,000/€2.5)		12,000
	(Being 30,000 Euros paid to Y on account for the inventory bought on 1 October at a loss of £ 2,000 due to Foreign Exchange Fluctuation)
Dec 15	X (Creditor) A/C (€150,000/€2.80) Dr.	53,571
	Foreign Exchange Fluctuation A/C (B/F) Dr.	8,929
	To Bank A/C (€150,000/€2.40)		62,500
	(Being 150,000 Euros paid to X for the equipment purchased on 1 November at a loss of £ 8,929 due to Foreign Exchange Fluctuation)
Dec 31	Foreign Exchange Fluctuation A/C Dr.	7,293
	To Y ( Trade Creditor) A/C                                                                    {(€ 20,000/€3) – (€20,000/€ 2.2)}		2,423
	To X (Creditor) A/C       {(€ 50,000/€2.80) – (€50,000/€ 2.2)}		4,870
	(Being Creditor, a monetary item converted at the closing rate with resulting loss debit to Foreign Exchange Fluctuation Account)
Dec 31	Statement of Profit or loss A/C Dr.	18,222
	To Foreign Exchange Fluctuation A/C		18,222
	(Being loss due to Foreign Exchange Fluctuation recorded) (£2,000+ £ 8,929+ £7,293)

Based on the entries above,

A. The exchange/gain loss recognized in the books of Dale on 30 November 2010 is £ 2,000.

1. The exchange/gain loss recognized in the books of Dale on 15 December 2010 is £ 8,929.
2. The exchange gain/loss on retranslating the monetary liability of € 20,000

       (€ 50,000 - € 30,000) Accounts Payable for Y on the reporting date of 31 December 2010 is

        £ 2,423 {(€ 20,000/€3) – (€20,000/€ 2.2)} or € 20,000

1. The exchange gain/loss on retranslating the monetary liability of € 50,000

               (€ 200,000 - € 150,000) Note Payable for X on the reporting date of 31 December 2010 is

£ 4,870 {(€ 50,000/€2.80) – (€50,000/€ 2.2)} or € 50,000

1. The exchange gain/loss on retranslating all the monetary items on the reporting date of 31 December 2010 is € 8,283 (£ 18,222/ € 2.2) or £ 18,222

1. The Total exchange gain/loss that is reported in the income statement of Dale Plc Company for year ended 31 December 2010 is £ 18,222