Translation of foreign currency USA Corp issues quarterly financial statements o

Question

 Translation of foreign currency USA Corp issues quarterly financial statements on September 30, 20X4, and pays its GBP 1,000 account payable to the counterparty on October 15, 20X4. The exchange rates are shown in the following table.  Date                                        Exchange rate  August 1,20X4                        USD 1.5 = GBP 1  September 30, 20X4               USD 1.4 = GBP 1  October 15, 20X4                    USD 1.3 = GBP 1  How should USA Corp measure and record this foreign currency transaction (a) in its quarterly financial statements for the quarter ended on September 30, 20X4, and (b) upon settlement of its account payable on October 15, 20X4?  

Explanation / Answer

A) Recording foreign currencyh transactions in Quarterly financial statements:

For Financial statements disclosures all foreign curreny liabilities and assets should be reinstated at Financials closing date forex rate.

So on September 30, 2014 Accounts payable GBP 1,000 = 1000*Closing rate USD 1.4 = USD 1,400

Accounts payable as on Sep 30 is USD 1,400

b) Upon settlement:

On settlement the actual rate on that day used for settlement should be considered

Payment amount= GBP 1,000*USD 1.3 = USD 1,300

Gain / (Loss) calculation

Liability as on sep 30 is USD 1,400

Paid USD 1,300 for full settlement therefore Gain = USD 100

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