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Joined: 02 Feb 2010
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Posted: 12 Apr 2010 at 10:36 | IP Logged  

A company has a payable of 50,000 walsends (a currency of a foreign country). This liability arose from a purchase of inventory made on December 13, Year One that will be paid at the end of January Year Two. The inventory is still on hand at the end of the year. The company is now preparing a balance sheet as of December 31, Year One in terms of US dollars which is the company’s functional currency. One walsend was worth $.10 on December 13, Year One but one walsend is worth $.14 on December 31, Year One. In connection with the reporting of the inventory, which of the following statements is true?


ans is d

my question is how is it 2000 gain  acc to my calc its sjhould be 2000 loss

since inv on dec 11 is 5000 and dec 31 is 7000 so diff 2000 should be loss since it says thts the amt is payable as the co purchsed inv so now the co  had to pay 5000 on dec  11 and on dec the co has to pay 7000 so diff 2000 is loss ...right  then y it says gain...pls explain ...thanks in advance.



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Joined: 15 Aug 2008
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Posted: 13 Apr 2010 at 06:58 | IP Logged  

Please note:  there is an increase in the dollar value of the carried inventory at dec 31. This gain is what creates the positive translation adjustment in owners equity.


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Joined: 07 Jun 2017
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Posted: 07 Jun 2017 at 00:33 | IP Logged  

Please note that this is a trick question. It talks
only about inventory. In case of translation, both
inventory and payables go + $2000. since this talks of
only inventory, it is a 'gain' of $2000 in closing
stock valuation. All translation gains and losses are
reported in OCI. Note that the net effect on OCI from
this transaction is nil. Gain from closing stock
perspective and loss from accounts payable

In case of remeasurement, only monetary items are
remeasured. Hence inventory is not remeasured.
Therefore no loss or gain. But accounts payable will
be remeasured which will result in a foreign currency
loss of $2000 reported in net income. However, since
the question talks only of inventory, the answer is no
foreign currency gain or loss on inventory reporting
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