Foreign Currency Invoices

crispy

Hello,

I was looking for some advise on the following:

Company where I work has a large amount of stock purchased in foregin currency (USD), of which as at year end the relevant purchase invoices have not been received. An accrual has therefore been included in the accounts calculated using the spot rate effective as at the date the stock was received.

Two months later the invoices are received and are dated current, my question is when the purchase invoices are input should the spot rate from the invoice date or spot rate from when the goods received be used. If the current date is used this would cause a difference from the purchase value to the stock value ?

Thanks for any feedback.

coojee

Wouldn't you have to re value them at the year end anyway to the year end rate?

crispy

Hello,

Thanks for for response.

No - any revaulation would take place on monetary items (debtors, creditors, bank account balances, loans etc.) not on any non-monetary items (inventory, fixed assets) which are carried at cost.

oakley

the invoice should be posted at the current spot rate and the variance between this and the value accrued on receipt posted to the IPV account (technically may be exchange but in reality far too difficult to calculate for large volumes of invoice)


on receipt $150 Dr stk Cr GRNI - at 1.5$/£ - Dr Stk £100 Cr GRNI £100 (presume no PPV)
on invoice $150 Dr GRNI Cr AP - at $1.6/£ - Dr £100 GRNI Cr £93.75 AP Cr £6.25 IPV

crispy

Hi,

Thank you - could you clarify for me what is meant by the IPV/PPV account, I have a nominal expense account for exchange differences ?

coojee

crispy wrote: »

Hello,

Thanks for for response.

No - any revaulation would take place on monetary items (debtors, creditors, bank account balances, loans etc.) not on any non-monetary items (inventory, fixed assets) which are carried at cost.

Sorry, should have been more clear - I was referring to the creditor.

oakley

PPV - Purchase Price Variance - difference between PO price and stock price (standard cost)
IPV - Invoice Price Variance - difference between Invoice Price and PO Price

both these are variances and should be part of Cost of Sales, not Admin Expense ie exchange difference.

As coojee states, the unpaid AP invoices in USD will be revalued at the period end and the differences here will be charged to unrealised gains/losses


NOTE also : Invoice price difference on foreign currency invoices will always have an element of exchange difference in it, most of the time this can be ignored and just charged to variances, however, watch for large variations on exchange rate if you use a standard costing system and only update costs once per year, eg USD/£ rate movement from 2/1 to 1.6/1, this would give a large charge to IPV which could distort your Cost of Sales number