1 - FC transactions.ppt

1、Advanced Accounting II,Topic 1 A Foreign currency transactions,Based on slides accompanying Advanced Accounting, 10th edition by Floyd A. Beams, Robin P. Clement, Joseph H. Anthony, and Suzanne Lowensohn,FC Transactions - Objectives,Explain the difference between receivable or payable measurement an

2、d denomination. Understand key concepts related to foreign currency exchange rates, such as indirect and direct quotes; floating, fixed, and multiple exchange rates; and spot, current, and historical exchange rates.,Based on slides accompanying Advanced Accounting, 10th edition by Floyd A. Beams, Ro

3、bin P. Clement, Joseph H. Anthony, and Suzanne Lowensohn,FC Transactions Objectives (cont),Record foreign currency-denominated sales/receivables and purchases/payables at the initial transaction date, year-end, and the receivable or payable settlement date.,Based on slides accompanying Advanced Acco

4、unting, 10th edition by Floyd A. Beams, Robin P. Clement, Joseph H. Anthony, and Suzanne Lowensohn,Based on slides accompanying Advanced Accounting, 10th edition by Floyd A. Beams, Robin P. Clement, Joseph H. Anthony, and Suzanne Lowensohn,Measurement and Denomination,Measured in a currency Recorded

5、 in the financial records in that currency Also known as reporting or presentation or functional currency (usually the currency of the country in which the company is located) Denominated in a currency Requires settlement (payment or receipt) in that currency For firms in China: CNY is the measureme

6、nt currency Payables and receivables may be denominated in CNY or other currencies,Exchange Rates,Spot rate Exchange rate for immediate delivery Current rate Exchange rate at balance sheet date, or Exchange rate at the transaction date Historical rate Exchange rate which existed when a specific tran

7、saction or event occurred Rates may be fixed or floating,Based on slides accompanying Advanced Accounting, 10th edition by Floyd A. Beams, Robin P. Clement, Joseph H. Anthony, and Suzanne Lowensohn,Based on slides accompanying Advanced Accounting, 10th edition by Floyd A. Beams, Robin P. Clement, Jo

8、seph H. Anthony, and Suzanne Lowensohn,Quoting Exchange Rates,Direct quotation (CNY per one foreign currency unit) CNY6.5222 for $1 (Australian dollar) Indirect quotation (foreign currency units per one CNY) $0.1533(Australian dollars) for CNY1 Direct and indirect quotes are reciprocals $1 / 6.5222=

9、 $0.1533 1CNY / $0.1533 = 6.5222CNY,Based on slides accompanying Advanced Accounting, 10th edition by Floyd A. Beams, Robin P. Clement, Joseph H. Anthony, and Suzanne Lowensohn,Foreign Currency Purchases,Purchases on account Denominated in a foreign currency Subject to foreign exchange risk Changes

10、in the foreign exchange rate cause gains or losses Changes the amount of local currency required Foreign currency accounts payable is adjusted to fair value each period until paid,Example: FC Purchase,On 1 May 2011 Aussie Ltd purchases goods for CNY500,000. The goods are shipped on 1 June and title

11、passes to Aussie Ltd. This amount remains unpaid on 30 June 2011 (balance sheet date) Relevant exchange rates: 1 May 2011: 1.00 AUD = 7.1086CNY 1 June 2011: 1.00AUD = 6.8876CNY 30 June 2011: 1.00AUD = 6.9285CNY,Based on slides accompanying Advanced Accounting, 10th edition by Floyd A. Beams, Robin P

12、. Clement, Joseph H. Anthony, and Suzanne Lowensohn,Example: FC Purchase,Amount of the debt in AUD: 1 May 2011 nil (order only no debt recorded) 1 June 2011 500,000CNY / 6.8876= 72,594AUD 30 June 2011 500,000CNY / 6.9285= 72,166AUD Exchange gain = 428AUD,Based on slides accompanying Advanced Account

13、ing, 10th edition by Floyd A. Beams, Robin P. Clement, Joseph H. Anthony, and Suzanne Lowensohn,Example: FC Purchase - entries,1 June 2011 Dr. Inventory72,594 Cr. FC Accounts Payable72,594 30 June 2011 Dr. FC Accounts Payable 428 Cr. Exchange gain 428,Based on slides accompanying Advanced Accounting

14、, 10th edition by Floyd A. Beams, Robin P. Clement, Joseph H. Anthony, and Suzanne Lowensohn,Example: FC Purchase (cont),The account was paid on 31 July 2011. On that date 1.00AUD = 7.0897CNY Amount of the debt in AUD: 500,000CNY / 7.0897 =70,525 AUD Exchange gain = 1,641 AUD (Acc payable balance wa

15、s 72592 428. = 72166),Based on slides accompanying Advanced Accounting, 10th edition by Floyd A. Beams, Robin P. Clement, Joseph H. Anthony, and Suzanne Lowensohn,Example: FC Purchase settlement entries,31 July 2011 Dr. FC Accounts Payable 1,641 Cr. Exchange gain 1,641 Dr. FC Accounts Payable70,525

16、Cr. Cash70,525,Based on slides accompanying Advanced Accounting, 10th edition by Floyd A. Beams, Robin P. Clement, Joseph H. Anthony, and Suzanne Lowensohn,FC Purchase,Question: How would the above entries have been different had the transaction been denominated in AUD? Initial entry 30 June 2011 Se

17、ttlement entry 31 July 2011 - amount would be agreed at 1 May 2011 = 500,000 / 7.1086 = 70,337 AUD No exchange gains,Based on slides accompanying Advanced Accounting, 10th edition by Floyd A. Beams, Robin P. Clement, Joseph H. Anthony, and Suzanne Lowensohn,Based on slides accompanying Advanced Acco

18、unting, 10th edition by Floyd A. Beams, Robin P. Clement, Joseph H. Anthony, and Suzanne Lowensohn,Foreign Currency Sales,Sales on account Denominated in a foreign currency Subject to foreign exchange risk Changes in the foreign exchange rate cause gains and losses Foreign currency accounts receivab

19、le is adjusted to fair value each period until collected.,Based on slides accompanying Advanced Accounting, 10th edition by Floyd A. Beams, Robin P. Clement, Joseph H. Anthony, and Suzanne Lowensohn,Example: Sale on Account,Same transaction from the perspective of the seller and denominated at 70,33

20、7 AUD: 1 May 2011 no entry, order only 1 June 2011 receivable 70,337 * 6.8876 = 484,453CNY 30 June 2011- receivable70,337 * 6.9285 = 487,330CNY Exchange gain = 2,877CNY 31 July 2011 settlement 70,337 * 7.0897= 498,667CNY Exchange gain= 11,337CNY,Sale on Account - Entries,1 June 2011 Dr. FC Accounts

21、receivable484,453 Cr. Sales484,453 30 June 2011 Dr. FC Accounts Receivable 2,877 Cr. Exchange gain 2,877,Based on slides accompanying Advanced Accounting, 10th edition by Floyd A. Beams, Robin P. Clement, Joseph H. Anthony, and Suzanne Lowensohn,Sale on Account - Entries,31 July 2011 Dr. FC Accounts

22、 Receivable 11,337 Cr. Exchange gain 11,337 Dr. Cash498,667 Cr. FC Accounts Receivable498,667,Based on slides accompanying Advanced Accounting, 10th edition by Floyd A. Beams, Robin P. Clement, Joseph H. Anthony, and Suzanne Lowensohn,Sale on Account,Question: Has China Ltd really made a gain on thi

23、s transaction? NO The exchange rate at which this transaction was settled was lower than the rate intially applied to determine the price to be paid by Aussie Ltd in AUD. The price China Ltd initially was looking to achieve was 500,000CNY Why might China Ltd have agreed to take the risk and denomina

24、te this transaction in AUD?,Based on slides accompanying Advanced Accounting, 10th edition by Floyd A. Beams, Robin P. Clement, Joseph H. Anthony, and Suzanne Lowensohn,Question 1,Textbook question 2: Direct quotation: 1 = US$1.20 Indirect quotation: US$1 = 0.83,Based on slides accompanying Advanced

25、 Accounting, 10th edition by Floyd A. Beams, Robin P. Clement, Joseph H. Anthony, and Suzanne Lowensohn,Question 2,Textbook question 5,Based on slides accompanying Advanced Accounting, 10th edition by Floyd A. Beams, Robin P. Clement, Joseph H. Anthony, and Suzanne Lowensohn,Question 3,Textbook ques

26、tion 9 Billing date: 1,000 x 1.45US$1,450 Year end: 1,000 x 1.47US$1,470 Exchange loss 20 Settlement date: 1,000 x 1.46US$1,460 Exchange gain 10,Based on slides accompanying Advanced Accounting, 10th edition by Floyd A. Beams, Robin P. Clement, Joseph H. Anthony, and Suzanne Lowensohn,Question 4 FC

27、purchase,1 Oct 2010 US Ltd purchased goods from Japan Ltd for 2,000,000 yen. US Ltd prepares financial stmts 31 December Settlement 1 April 2011 Exchange rates: Oct 1 2010 1 = US$0.0070 Dec 31 2010 1 = US$0.0080 April 1 2011 1 = US$0.0076,Based on slides accompanying Advanced Accounting, 10th edition by Floyd A. Beams, Robin P. Clement, Joseph H. Anthony, and Suzanne Lowensohn,Question 4 FC purchase,Transaction valuation: Oct 1 2010 1 = US$0.0070US$14,000 Dec 31 2010 1 = US$0.0080US$16,000 April 1 2011 1 =