Reporting a Foreign Currency Transaction on the Financial Statements On November

Question

Reporting a Foreign Currency Transaction on the Financial Statements

On November 30, 20X5, Bow Company received goods with a cost denominated in pounds. During December 20X5, the dollar's value declined relative to the pound. Bow believes that the original exchange rate will be restored by the time payment is due in 20X6.

Required:

State how Bow should report the impact, if any, of the changes in the exchange rate of the dollar and the pound on its 20X5 financial statements.

Explain why the reporting is appropriate.

What ethical issues must we consider, if any?

Explanation / Answer

Answer : the exchange difference arising on the settlement of monetary items or on translating monetary items at rates different from those at which they were translated on initial recognition during the period or in
previous financial statements shall be recognised in profit or loss in the period in which they arise, except

exchange differences arising on a monetary item that forms part of a reporting entity’s net investment in foreign operation

Disclosure requirements in financial statements

The amount of exchange difference recognised in profit and loss account expect for those arising on financial statements measured at fair value through profit or loss account

This answer is based on indiI accounting standards

Hope this helps you

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