International Financial Reporting of Dalle Ltd. UK

International Financial Reporting
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Related parties and changes in foreign exchange rates
21.2 Dalle Ltd is a UK company which has the pound sterling as its functional currency. The
company has the following transactions in Euros (€) during the year to 31 March 2020:
1 January 2020 Equipment costing €143,750 bought on credit from X
1 February 2020 Inventory costing €48,000 bought on credit from Y
28 February 2020 Paid X in full for the equipment bought on 1 January
15 March 2020 Paid Y €13,200 on account for the inventory bought on 1 February
15 March 2020 Sold inventory to Z on credit for €77,000
Exchange rates may be assumed as follows:
1 January 2020 £1 = €1.25 15 March 2020 £1 = €1.10
1 February 2020 £1 = €1.20 31 March 2020 £1 = €1.00
28 February 2020 £1 = €1.15
The equipment bought on 1 January 2020 is carried at historical cost in the company's statement of financial position at 31 March 2020. The cost of the company's inventory at that date does not exceed its net realizable value.
1 Explain the accounting treatment of each of the above transactions.
Solution
DR Equipment

01-Jan-20

€ 143,750.00

1.25

£115,000.00




CR trade payables

01-Jan-20



 

€ 143,750.00

1.25

£115,000.00

Dr Inventory

01-Feb-20

€ 48,000.00

1.2

£40,000.00




CR trade payables

01-Feb-20



 

€ 48,000.00

1.2

£40,000.00

DR trade payables

28-Feb-20

€ 143,750.00

1.15

£125,000.00




CR Cash

28-Feb-20



 

€ 143,750.00

1.15

£125,000.00

DR trade payables

15-Mar-20

€ 13,200.00

1.1

£12,000.00




CR Cash

15-Mar-20



 

€ 13,200.00

1.1

£12,000.00

DR trade receivables

15-Mar-20

€ 77,000.00

1.1

£70,000.00




CR Sales

15-Mar-20



 

€ 77,000.00

1.1

£70,000.00

2 Calculate the exchange difference for the year to 31 March 2020 and explain how this difference should be dealt with in the company's financial statements.
Solution
 

 

 

 

Trade payable a/c

 

 

 

 





 

Equipment

01-Jan-20

€ 143,750

1.25

£115,000

cash

28-Feb-20

€ 143,750

1.15

£ 125,000