TOPIC 4

Question 1

Exchange Differences

Answer 1

They are transactions that take place in a different currency. Exchange gains or losses during arising on this process are to be recognised in the income statement for the reporting period in which they occur.

We will always write ‘Trade payables/recievables, foreign currency’

Question 2

Entry for if our payable/recievable increases due to change in the exchange rate at the end of the year.

Answer 2

D
Exchange Losses

C
Trade Payables, foreign Currency

The amount will be the difference between the debt recognised earlier and now.

GAINS ALWAYS CREDIT, LOSSES DEBIT

Question 3

Entry for if our payable decreases

Answer 3

D
Trade Payables, Foreign Currency

C
Exchange Gains

Question 4

Settlement Date: Payment (For trade payables)

Answer 4

1. Losses: (Company has to pay more)

D
Trade Payables, foreign Currency
Exchange Losses

C
Cash in Banks

2. Gains: (Company has to pay less)

D
(The amount from before) Trade Payables, foreign currency

C
Cash in Banks (Before - Gain)
Exchange Gains (Difference between current amount and amount from before)