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ACCA Applied Skills · Financial Reporting · Foreign currency transactions

Beta Co (functional currency $) bought equipment on 1 October for 600,000 francs (F) when the rate was $1 = F2.00. At the year end of 31 December the rate was $1 = F2.40, and it paid the supplier on 31 January at $1 = F2.50. Which statement correctly describes the accounting in the year ended 31 December?

Equipment is recognised at $300,000, the historic cost, and is not retranslated. The payable falls to $250,000 at the closing rate, so the $50,000 exchange gain goes to profit or loss.

  1. AEquipment is $300,000; an exchange gain of $50,000 is recognised in profit or lossCorrect
  2. BEquipment is $250,000; an exchange gain of $50,000 is recognised in profit or loss
  3. CEquipment is $250,000; an exchange loss of $50,000 is recognised in profit or loss
  4. DEquipment is $300,000; an exchange gain of $50,000 is recognised in other comprehensive income

Explanation

Equipment is recorded at 600,000 / 2.00 = $300,000 and not retranslated. The payable at year end is 600,000 / 2.40 = $250,000, a fall of $50,000. That is an exchange gain in profit or loss, not OCI. Other options misstate the asset cost or the direction.

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