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Lecture Examples For Printing

The document provides examples of foreign exchange transactions involving a South African company, Local Ltd, and outlines the necessary journal entries for various scenarios related to inventory acquisition, loan extension, and sales to foreign customers. It includes specific exchange rates for different dates and scenarios, emphasizing the treatment of financial transactions without considering tax effects. Each scenario requires accounting for the impact of exchange rates on the financial statements for different year-ends.

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omphimahlangu
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2 views4 pages

Lecture Examples For Printing

The document provides examples of foreign exchange transactions involving a South African company, Local Ltd, and outlines the necessary journal entries for various scenarios related to inventory acquisition, loan extension, and sales to foreign customers. It includes specific exchange rates for different dates and scenarios, emphasizing the treatment of financial transactions without considering tax effects. Each scenario requires accounting for the impact of exchange rates on the financial statements for different year-ends.

Uploaded by

omphimahlangu
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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Lecture examples: Foreign exchange

Lecture example 1

Ignore all current and deferred tax effects, which may arise.

The following exchange rates apply to all scenarios in this lecture example.

FC1 = R FC1 = R
Spot rates BUY SELL
1 October 20x4 3.00 3.10
1 December 20x4 3.25 3.30
1 January 20x5 3.30 3.36
28 February 20x5 3.40 3.48
31 March 20x5 3.50 3.55

Average rates Rate


1 December 20x4 - 31 March 3.45
20x5
1 October 20x4 - 31 March 3.20
20x5

Local Ltd is a company incorporated in South Africa and has determined that its
functional currency is Rands (R). Local Ltd entered into the following transactions in
20X4 and 20x5:

Scenario 1
Inventory which cost FC10 000 was acquired FOB (destination point) from a Foreign
supplier. It was loaded on 1 October 20x4 and landed on 1 December 20x4 and paid
for on 31 March 20x5. The inventory remained unsold at the year-end. The financial
year-end of Local Ltd is 30 June.

Prepare the journal entries required to account for the above in the 20x5 financial year.

1 December 20x4
Dr
Cr

31 March 20x5
Dr
Dr
Cr

Page 1 of
4
Scenario 2
Same as scenario 1, but the company’s year-end is 28 February.

Prepare the journal entries required to account for the above in the 20x5 and 20x6
financial years.

1 December 20x4
Dr
Cr

28 February 20x5
Dr
Cr

31 March 20x5
Dr
Dr
Cr

Scenario 3
Same as scenario 1, except that the inventory is held for export sales and had a net
realisable value of FC9 000 at the year-end (31 March).

Carrying value 33 000


NRV (FC9 000 x 3.50) 31 500
NRV < original cost (in Rands). therefore inventory
is impaired

31 March 20x5
Dr
Cr

Scenario 4
On 1 October 20x4, Local Ltd extends a loan of FC10 000 to an overseas company,
repayable in six months, together with interest at 20% p.a. Prepare the journal
entries required to account for the above in the 20x5 financial year. Assume Local Ltd
has a 31 March year end.

1 October 20x4
Dr
Cr

31 March 20x5
Dr
Cr
Cr

Dr
Cr
Cr

Page 2 of
4
Lecture example 2

Ignore all current and deferred tax effects, which may arise.

The following exchange rates apply to all scenarios in this lecture example.

FC1=R
Spot rates Rate
1 May 20x5 3.25
30 June 20x5 3.40
31 August 20x5 3.50

Forward rates Rate


1 May 20x5 (4-month FEC) 3.45
30 June 20x5 (2-month 3.48
FEC)
31 August 20x5 (6-month 3.60
FEC)

Scenario 1
On 1 May 20x5, SA Ltd sold inventory to a foreign customer for FC10 000 and
entered into a four- month FEC to sell FC10 000 on 31 August 20x5, the date on
which the customer is to settle its debt. The year-end is 31 December.

Prepare the journal entries required to account for the above in the 20x5 financial year.

1 May 20x5
Dr
Cr

31 August 20x5
Dr
Cr

31 August 20x5
Dr
Cr

Page 3 of
4
Scenario 2
Same as scenario 1, but the company’s year-end is 30 June.

Prepare the journal entries required to account for the above in the 20x5 and 20x6
financial years.

1 May 20x5
Dr
Cr

30 June 20x5
Dr
Cr

D
r
Cr

31 August 20x5
Dr
Cr
Cr

Dr
Dr
Cr

Page 4 of
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