Exchange Rates & Stock take
Sevren
Registered Posts: 101 Dedicated contributor 🦉
Hi, my head is spinning a bit on this one so I would be grateful for any clarity !
When goods are purchase in say USD, clearly the exchange rate is crystalised by the invoice, giving a GBP value.
However, where there are slow moving products (250 days stock turnover - yes I know - I keep questioning why they are buying so much in !) which are not readily identifiable (there are no computer systems), should these products be revalued to take into account the exchange rate fluctuations at the date of the balance sheet? I apprectiate it should be the lower of the historic cost or the net realisable value - but for managment accounts I clearly need to reflect the sizable changes so that sale prices are reviewed accordingly.
So what I am trying to ask is - how should stock be valued at the stocktake which was purchased in a foreign currency. I think the answer is it should be at the original exchange rate - but then I get confused by the fact that I should revalue assets and liabilities at balance sheet date !
As always, many thanks for you help
When goods are purchase in say USD, clearly the exchange rate is crystalised by the invoice, giving a GBP value.
However, where there are slow moving products (250 days stock turnover - yes I know - I keep questioning why they are buying so much in !) which are not readily identifiable (there are no computer systems), should these products be revalued to take into account the exchange rate fluctuations at the date of the balance sheet? I apprectiate it should be the lower of the historic cost or the net realisable value - but for managment accounts I clearly need to reflect the sizable changes so that sale prices are reviewed accordingly.
So what I am trying to ask is - how should stock be valued at the stocktake which was purchased in a foreign currency. I think the answer is it should be at the original exchange rate - but then I get confused by the fact that I should revalue assets and liabilities at balance sheet date !
As always, many thanks for you help
0
Comments
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It was always my understanding that balance sheet items are valued based on the exchange rate at the date of the balance sheet.0
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Thanks Groundy - so are you saying that if Product A was purchased for 1000 Euro in May which was £800 at the time (just an example - lets keep it simple !) and if purchased now would still be purchased for 1000 Euros but would be £850 - the stock take value would be £850 even though the historic cost was £800 ? This is the bit that's confusing me !
If for example the sale price is £825 the historic cost gives a profit but the balance sheet value would create a loss once I do the stock take journal to work out the COS.
Sorry - I am sure this is fundemental stuff but my head is spinning.0 -
Presuming you are reporting under IAS 21, all non monetary assets such as inventory are held at historical rate i.e. the amount that they were entered on the books at. It is only monetary assets and liabilities that are restated to the balance sheet date.
Don't worry about it being fundamental - I didn't even cover foreign translations until the advanced corporate reporting paper in ACCA.0
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