Exchange rate for stocktake of imported stock

KingPuck

Hi all,

I;m not sure if this query belongs in here or the business section but here it goes.

We did a stock take over christmas (hope you all had a good one by the way). Most of this stock is imported from Canada. It would have been imported over the last 12 months at various stages at varying exchange rates.

It was suggested by our accountant that we use the exchange rate at the time that we purchased the container of stock. Problem here is we would pay 50% on order and the balance on delivery, approx 6 weeks later. Therefore the exchange rate would be different at each stage payment. some as low as $1.40, some as high as $1.60.

Is there an industry standard for this scenario? I was hoping to use a rough average of $1.50. My personal view is that unless the method used is 100% accurate are any alternates any better?

Also there is the two other issues of duty paid on stock and shipping fees.

With the duty, approx 6% paid, is that to be incorportad into hte value of the stock on hand?

Assuming we have approx 3 full containers of stock and assuming it would cost 2000 Euro to bring in each container can we add 6k onto the final value of the stock? The current values for each stock item we are using are the dollar prices on our invoices.

As above, is there an industry standard for this situation?

johnc2212

foreign currency transactions are recorded at the rate of exchange at the date of the transaction. any loss gain on settlement is posted to the P&L (income statement)

hivizman

According to International Accounting Standard 2 Inventories, the cost of inventories comprises all costs of purchase, costs of conversion, and other costs incurred in bringing the inventories to their present loacation and condition. The costs of purchase include any import duties and other taxes that are not recoverable by the entity.

On the foreign currency translation, the previous reply is correct, but businesses with many similar foreign currency transactions often use average exchange rates rather than specific exchange rates to make calculations easier. So long as the use of the average rate does not have a material impact on your figures, it should be acceptable. For example, if a container load of wine was invoiced at Can$60,000, and you paid half of this on order when the rate was $1.40, and the balance on delivery when the rate was $1.60, you would pay a total of Euro 21,429 + 18,750 = 40,179. However, using the average rate of $1.50, you would calculate the purchase price of inventory at Euro 40,000. Most accountants would regard the difference of Euro 179 as immaterial.

Da GOAT

average rate then write of diff a fx gain or loss

dz

johnc2212 wrote: »

foreign currency transactions are recorded at the rate of exchange at the date of the transaction. any loss gain on settlement is posted to the P&L (income statement)

Correct treatment. Any movements in the exchange rate is a business risk. You could probably hedge it by buying a forward at the prevailing rate when the deal is done. However, this would limit any upside potential.