Typical Transaction 15
Example: For a better understanding of currency differences, in contrast with TT14 which explains a case of revaluation of the US dollar versus the pound we will use in the transaction an example of devaluation of the pound versus the US dollar.
This in this example the US Dollar has revalued against the British Pound, from 1.7 USD per pound to 1.5 USD per pound, the original invoiced amount in has increased from £44,000 to £49,867. It means a currency loss of £5,867.
|Adjustment for Currency Loss||Increase in Creditors (+)|
|Decrease in Retained Earnings (-)|
The table below shows the changes in TT15:
|Debtors and Prepayments||9,300||9,300|
|Other Current Assets (Stock)||0||0|
|Long Term Liabilities||0||0|
|Long Term Loan||0||0|
|TOTAL Liabilities + Equity + Retained Earnings||774,450||761,983|
When adjusting for currency loss, 5,867, caused by a devaluation of the exchange rate GBP/USD from 1.7.to 1.5, the following is observed:
– Payment to Supplier of vehicles: original amount, 44,000, plus increase price due to devaluation, 5,867, a total of 49,687.
– New Cash at Bank becomes: original Cash at Bank minus payment to Supplier = 758,550 minus 49,687 = 708,683.
– Due to total payment to Creditors, 44,000 plus currency loss adjustment, Creditors become zero
– Current Liabilities decrease to 300 as Creditors have been fully paid.
– Loss in Income Statement increases by 5,866, down from -32,450 to -38,316.
– Equity reduces by the amount lost, 5,866, down from 767,550 to 761,683.