ExpertMedium2 marksMultiple Choice
ACCA · Question 07 · Accounting for Transactions
SECTION A
Global Trade Corp, whose functional currency is the Dollar ($), sold goods to a foreign customer on 1 November 20X7 for 100,000 Euros (€). The customer paid the invoice on 15 January 20X8. Global Trade's year-end is 31 December 20X7.
Exchange rates:
1 Nov 20X7: $1 = €0.80
31 Dec 20X7: $1 = €0.85
15 Jan 20X8: $1 = €0.82
What is the exchange difference recognized in the Statement of Profit or Loss for the year ended 31 December 20X7?
SECTION A
Global Trade Corp, whose functional currency is the Dollar ($), sold goods to a foreign customer on 1 November 20X7 for 100,000 Euros (€). The customer paid the invoice on 15 January 20X8. Global Trade's year-end is 31 December 20X7.
Exchange rates:
1 Nov 20X7: $1 = €0.80
31 Dec 20X7: $1 = €0.85
15 Jan 20X8: $1 = €0.82
What is the exchange difference recognized in the Statement of Profit or Loss for the year ended 31 December 20X7?
Answer options:
A.
$7,353 loss
B.
$7,353 gain
C.
$5,000 loss
D.
$3,049 loss
How to approach this question
Translate the receivable at the transaction date. Then retranslate at the year-end closing rate. The difference is the exchange gain or loss.
Full Answer
A.$7,353 loss✓ Correct
Under IAS 21, monetary items (like trade receivables) are retranslated at the closing rate.
Value at 1 Nov: €100,000 / 0.80 = $125,000.
Value at 31 Dec: €100,000 / 0.85 = $117,647.
The receivable has decreased in value by $7,353 ($125,000 - $117,647), resulting in an exchange loss recognized in profit or loss.
Common mistakes
Multiplying by the exchange rate instead of dividing, or confusing a gain with a loss when the home currency strengthens.
Practice the full ACCA FR — Financial Reporting Practice Exam 3
32 questions · hints · full answers · grading
More questions from this exam
Q01SECTION A
Nexus Innovations, a tech startup, is preparing its first set of financial statements ...EasyQ02SECTION A
CyberShield Inc. sells a software license bundled with 12 months of mandatory technica...MediumQ03SECTION A
Titanium Forge Co, a heavy manufacturing firm, revalued its main factory building for ...EasyQ04SECTION A
AgriTech Solutions is developing a new automated irrigation system. Under IAS 38 Intan...MediumQ05SECTION A
Skyward Aviation entered into a 5-year lease for a maintenance hangar. The annual leas...Hard