Question

A company buys the plastic materials to make their credit cards from suppliers in Indonesia.  They placed their most recent order on June 15, 20X1 agreeing to pay 40,000 Indonesian Rupiah in 30 days when the bill is due on July 15, 20X1. A company prepares semiannual reports.

Date	Spot Rate (1 Ind. Rupiah to USD)
06/15/X1	$0.87
06/30/X1	$0.82
07/15/X1	$0.91

Please prepare the journal entries for this transaction

Answer 1

The Company buys plastic materials for 40000 Indonesian Rupiah and paid the same. The foreign currency transaction mentioned below arise due to business currency being USD and exchange rate varies from date of purchase - to date of semi annual year ending and to date of settlement.

Date	Account	Debit ($)	Credit($)
06/15/X1	Material A/c	34800
	Accounts Payable		34800
	(Being foreign curency transaction of 40000 Indonesian Rupiah initially recognised at spot rate as on the date)
06/30/X1	Accounts Payable	2000
	Foreign Currency Transaction Gain		2000
	(Being adjustment made for unrealised exchange rate gain for semi annual reporting)
07/15/X1	Accounts Payable	32800
	Foreign Currency Transaction Loss	3600
	Cash		36400
	(Being Foreign Exchange Loss incurred due to change in rate between semi annual date and settlement date)

Conclusion: The net effect ends up being company recording material at $34800 initially and finally paying $36400, and recording net foreign currency transaction realised exchange loss of $1600 (3600-2000).

Working:

	06/15/X1	06/30/X1	07/15/X1
Spot Rate (1 Ind Rupiah to $)	0.87	0.82	0.91
Transaction Amt.(in Ind. Rupiah)	40000	40000	40000
Conversion into $ (Spot Rate x Transaction Amt.)	34800	32800	36400
Foreign Currency Transcation Gain/Loss (Exchange Rate Difference)		2000 (Gain) [34800-32800]	3600 (Loss) [32800-36400]