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Example 1: (Historical Rate) : Exchange Rate On April 1 1us $ 0.9 Euro

1) A US company purchased equipment in April from German and French companies for 100,000 euro each using the historical exchange rate on the date of purchase. 2) At year-end, the equipment is recorded on the balance sheet at the current exchange rate of $0.89 euro, valuing it at 224,719. 3) Depreciation expense for the year is calculated as the book value minus salvage value divided by useful life, totaling 31,318.5.

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15 views

Example 1: (Historical Rate) : Exchange Rate On April 1 1us $ 0.9 Euro

1) A US company purchased equipment in April from German and French companies for 100,000 euro each using the historical exchange rate on the date of purchase. 2) At year-end, the equipment is recorded on the balance sheet at the current exchange rate of $0.89 euro, valuing it at 224,719. 3) Depreciation expense for the year is calculated as the book value minus salvage value divided by useful life, totaling 31,318.5.

Uploaded by

mishary
Copyright
© © All Rights Reserved
Available Formats
Download as PDF, TXT or read online on Scribd
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Example 1: (historical rate)

A. April 1st company based in us functional currency is us $, purchase an equipment


from a German company for 100,000 euro
Exchange rate on April 1st 1us $ = 0.9 euro
[ 100,000/0.9] = 111,111
Journal entry:
Debit Credit
Equipment 111,111
Cash 111,111

B. April 30 purchase equipment from French company for 100,000 euro


Exchange rate on April 30 1us $ = 0.91 euro
[ 100,000/0.91] = 109,890
Debit Credit
Equipment 109,890
Cash 109,890

Equipment _____
111,111
109,890
_______________
221,001 ---------à historical rate ( fix assets)

financial statement at the end of the year on Dec 31


exchange rate 1 us$ = 0.89 euro
[200,000 / 0.89] = 224,719
at the current rate Dec 31 = 224,719

useful life 5 year no salvage value on Dec 31 what will be the amount to calculate dep
expanse
[dep = book value – salvage value / useful life]
equipment A = 111,111/ 5 = 222,222 equipment B = 109,890/5 = 21,978
[222,222 * 9/12] = 16,666.5 [21,978* 8/12] = 14,652

Depreciation expanse = 16,666.5+14,652 = 31,318.5

Debit Credit
Dep expanse – equipment 31,318.5
Accumulated dep 31,318.5
Example 2: (current rate)
A. April 2nd a US company sold 150,000 us $ to an Italian company
the exchange rate 1 us $= 0.9 euro
payment to be received next year
April 2nd:
Debit Credit
AR 150,000
Sales revenues 150,000
Note: Italian [150,000*0.9 = 135,000 euro]

The exchange rate on Dec 31st 1 us $ = 0.91 euro


[135,000/0.91 = 148,351]
deferent in exchange rate 135,000- 148,351= 1,649
Debit Credit
F exchange loss 1,649
AR 1,649

Received the payment from the Italian company 135,000 euro


AR 148,351 at the date of transfer the exchange year was 1 us$ = 0.92 euro
Cash = [ 135,000 euro /0.92 = 146,739]
Debit Credit
Cash 146,739
FX loss (diff) 1,612
AR 148,351

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