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In: Accounting

Namibia power company Ltd (Nam power) is a provider of electricity power and has 30 September...

Namibia power company Ltd (Nam power) is a provider of electricity power and has 30 September as its year-end. Its functional currency is Namibian dollar
On 1 July 2016, Nam Power ordered goods from at a cost of €75 000. The goods were shipped on 16 July 2016 to the destination point and were received in Windhoek on 1 August 2016. The suppliers invoice was settled on 31 October 2016. The transactions were done on CIF basis.

The following exchange rates applied during the year
Spot rates
1€ N$
1 March 2016
13.80
1 July 2016
13.85
25 July 2016
12.90
1 August 2016
13.60
30 September 2016
13.20
31 October 2016
13.40
28 February 2017
13.70
30 September 2017
13.80
You are required to prepare the relevant journals for the 2016 financial year of Nam power to record the above transactions. Include any computations in your narratives

Expert Solution

Order placed on 1st July, 2016

Value of goods = N$ 1,038,750(€75000×N$13.80)

Purchase a/c Dr N$1,038,750

To Sundry creditors N$1,038,750

(Being order placed)

Goods received on 1 August,16.

Value of goods= N$ 1,020,000 (€75000×N$ 13.60)

Sundry creditors Dr N$18,750

Foreign exchange Foreign flactuation gain N$ 18,750

(Being exchange gain recognised)

Year Ended on 30 September

Value of goods= N$ 990,000

Sundry creditors Dr N$ 30,000

To Foreign exchange flactuation gain N$ 30,000

(Being currency exchange gain recognised)

Foreign exchange flactuation gain Dr N$ 48,750

To Profit and loss a/c N$ 48,750

(Being gain transferetr to profit and loss account)

Invoice settled on 31 October

Value of goods= N$ 1,005,000 (€75000×N$ 13.40)

Sundry creditors Dr N$ 990,000

Foreign exchange flactuation loss Dr N$ 15,000

To Bank a/c N$ 1,005,000

(Being invoice settled for supplier)

On 30 September, 2017

Profit and loss a/c Dr N$ 15,000

To Foreign exchange flactuation loss N$ 15,000

(Being loss transfer to profit and loss account)

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