3. Prepare the journal entry to record receipt of payment by Hamada LLC if the spot...

3. Prepare the journal entry to record receipt of payment by Hamada LLC if the spot rate on dirhams was 4.75 dirhams/GBP on April 2, 2020.

Suppose that on February 1, 2020, Victoria, Plc., a British company, makes a sale and ships goods to Hamada, LLC, an Emirati customer, for 100,000 (GBP).

However, it is agreed that Hamada will pay in dirhams on April 2, 2020. The exchange (spot) rate as of February 1, 2020 is 5 dirhams per Great British Pound.

Expert Solution

Accounting for FX Spot transactions

IAS 21, “The Effect of Changes in Foreign Exchange Rates“, prescribes the accounting treatment for foreign currency transactions and how to report the effects of changes in exchange rates in the financial statements.

Initial recognition
A foreign currency transaction shall be recorded initially, by applying to the foreign currency amount the spot exchange rate at the date of the transaction.

Exchange differences
Exchange differences arising on the settlement of monetary items or on translating monetary items at rates different from those at initial recognition shall be recognized in profit or loss in the period in which they arise.

Reporting at subsequent balance sheet dates
At the end of each reporting period, foreign currency monetary items shall be translated using the closing rate.

Please note below Journal Entry

Journal
Date	Particulars	Debit	Crebit
April - 2 -2020	Cash A/c /Bank A/c Dr	475,000.00
	Foreign Currency Exchange Loss A/c Dr	25,000.00
	To Receivable Hamada LLC		500,000.00
	Hamada LLC if the spot rate on dirhams was 4.75 dirhams/GBP on April 2, 2020. The exchange (spot) rate as of February 1, 2020 is 5 dirhams per Great British Pound.

ekkarill92 answered 1 year ago

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