[Anonymous]

If you are looking for the gain or loss on December 31, wouldn’t you use the December 31 conversion trade to compare with the June 1 rate, which would be (1.40-1.35)*200,000=10,000?

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On June 1, year 1, ABC Co. issued a 200,000 euro purchase order for equipment to be supplied by a German company. ABC’s functional currency is the US dollar. The equipment was delivered to ABC on November 1, year 1, and ABC recorded a payable due to the German company. ABC paid for the equipment on January 31, year 2. The following are the exchange rates in effect:

June 1, year 1 // 1 euro = 1.40 US dollars

November 1, year 1 // 1 euro = 1.50 US dollars

December 31, year 1 // 1 euro = 1.35 US dollars

January 31, year 2 // 1 euro = 1.30 US dollars

Under IFRS, what is the foreign currency gain or loss that ABC should record for the year ended December 31, year 1?

A. a loss of $30,000

B. a loss of $20,000

C. a gain of $10,000

D. a gain of $30,000

answer D

[Anonymous]

Ive seen a question similar to this. I think they expect you to calculate the gain/loss between June when the purchase order was issued & November when the payable is recorded first which would be (1.40-1.50) * 200,000 = 20,000 loss then between Nov & Dec the gain would be (1.50- 1.35) * 200,000 = 30.000 Gain.

I think its done similar to the case where you have the year end coming before the payment date in the following year where you would calculate the gain/loss at year end then calculate gain/loss between year end and the payment date

[Anonymous]

Is that the same for US GAAP?

[Anonymous]

Well I use becker and usually they would highlight where there are significant differences between GAAP & IFRS & i dont recall there being any regarding this

[jaxon1024]

Since you didn't record the payable until November 1 that is the date you calculate the gain/loss from. Issuing the purchase order doesn't create a liability on the books so you can't calculate from that date.

Reg 85 (11-21-14)
Aud 93 (1-17-15)
Bec 89 (2-27-15)
Far 92 (5-7-15)

Becker Self Study and Wiley Test Bank

[Author]

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