Bull Co. sold goods worth $10,000 to a foreign entity. On June 30, 20x1, Bull Co's reporting period cut-off date, the exchange rate was P26.60. On August 15, 20x1, payment was received through bank transfer whereby Bull Co's account was credited P265,400 before any charges. At the time foreign entity accepted the merchandise, the exchange rate was P26.75. at what exchange rate is the sale from the transaction would most likely be recognized?

 

Answer:

• On the date goods are sold to the foreign entity, the transaction should be recorded under " initial recognition ", for this rate prevailing on date of sale be considered.

• Now, on June 30, 20x1, subsequent recognition will be done by applying exchange rate of P26.60. Any gain or loss on subsequent recognition will be recorded on the Income statement with a corresponding impact on the Accounts receivable.

• Further, on August 15, 20x1 when payment is received, when exchange rate is P26.75, Accounts receivable will be credited and gain will be recorded for (P26.75-P26.60)×$10,000 = P1500 in the income statement.