Question 1

**Section A**

EuroTrade, whose functional currency is the Euro (€), purchased inventory from a US supplier on 15 November 20X5 for $100,000 USD when the exchange rate was €1 = $1.10. The invoice remains unpaid at 31 December 20X5, when the exchange rate is €1 = $1.15. The inventory is still in stock and its net realizable value exceeds its cost. What is the total impact on EuroTrade's profit or loss for the year ended 31 December 20X5 regarding this transaction?

Accepted Answer

Separate the transaction into a non-monetary asset (inventory) and a monetary liability (payable). Retranslate only the monetary liability at year-end.

Question 2

What mistakes do candidates make on this ACCA question?

Accepted Answer

Retranslating the inventory as well as the payable, which would incorrectly result in a net zero impact on P&L.

How to approach this question

Full Answer

Common mistakes

Practice the full ACCA FR — Financial Reporting Practice Exam 2

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