USD Trust Account Valuation

System
System Posts: 100,534 🤖 Admin 🤖
edited 10:26AM in AAT student discussion
We use invoice discounting. One of our Customers is in the States. All their invoicing is in USD. These are then advanced to us at 85% in USD's from a factor Company. We have a trust account with them, which is invoicing, less advances, less Customer remittances. All our $ transactions are converted at 1.775 at the POS. However, the Trust Account is subject to exchange rates, the closing balance at EOM might be at 1.86 then the closing balance the following might be at 1.94. How do you value the amount of your creditor. When do you take the exchange rate variance to the P&L, every period, do you average the exchange rates, and use a year end adjustment?. I havn't adjusted it yet, September is our year end.

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  • System
    System Posts: 100,534 🤖 Admin 🤖
    USD Trust Account Valuation
    NeilCambs wrote:
    We use invoice discounting. One of our Customers is in the States. All their invoicing is in USD. These are then advanced to us at 85% in USD's from a factor Company. We have a trust account with them, which is invoicing, less advances, less Customer remittances. All our $ transactions are converted at 1.775 at the POS. However, the Trust Account is subject to exchange rates, the closing balance at EOM might be at 1.86 then the closing balance the following might be at 1.94. How do you value the amount of your creditor. When do you take the exchange rate variance to the P&L, every period, do you average the exchange rates, and use a year end adjustment?. I havn't adjusted it yet, September is our year end.

    Hi there

    Your creditor should be at the closing roe, ie for your year end, you should value the usd creditor at 30/09/06 roe.

    The revaluation each month should be taken through to the p&l. For example, if you had 1,000 usd at the begining of the accounting year when the roe was 2usd to £1, you would have £500 sat on your balance sheet, then if nothing happened at all in month one, but the roe changed to 2usd = £1.50, then you would show £750 in the balance sheet, and £250 on the p&l as a loss on exchange.

    Hopefully I've understood what youre asking, and have been some help! If I can help anymore, please let me know!
    Cheer
    Tone
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:USD Trust Account Valuation

    Thank you Tony. I will digest what you have said, and see if it fits. Sounds ok to me. Might be in touch if I get stuck. Cheers though.
    Neil. :wink:
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:USD Trust Account Valuation

    I have tested it.
    For example:
    Jan06 ME Creditor Statement ($89,241.74).
    Jan06 ME Exchage Rate 1.78 = (£50,135.81).
    Feb06 ME Exchange Rate 1.75 = (£50,995.28).
    So I would say your £50,135.81 in Jan is now worth £50,995.28 in Feb, a benefit of £859.47. Am I on the right track?
    Neil.
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:USD Trust Account Valuation
    NeilCambs wrote:
    I have tested it.
    For example:
    Jan06 ME Creditor Statement ($89,241.74).
    Jan06 ME Exchage Rate 1.78 = (£50,135.81).
    Feb06 ME Exchange Rate 1.75 = (£50,995.28).
    So I would say your £50,135.81 in Jan is now worth £50,995.28 in Feb, a benefit of £859.47. Am I on the right track?
    Neil.

    Hiya Neil

    Yea, you're on the right track mate. :wink:

    Heres another example which may help:
    If you raise an invoice for $1000usd which was worth £500 at the point of sale, you would credit the p&l £500, and £500 would be sat as a debtor on the balance sheet. If that transaction was settled next month, but because of the change in exchange rates, the value of the $1,000usd is now £600, you've effectively made a £100 profit on exchange. So you would have £500 sat in sales, and £100 sat as a gain on exchange, and £600 would be sat in your bank account.

    Hope this helps mate. Any probs, let me know.
    Tone

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