My company buys Euros from World First using a forward contract. At the end of the contract any Euros not 'used' are purchased at the agreed contract rate and held by World First until we are ready to spend them.
This happened over year end. My boss is now telling me that because World First are showing a euro balance, the euros need to be revalued at year end rate. Is this correct even though we have purchased them? I have valued them at the sterling rate we paid for them before the year end.
Thanks
Replies (3)
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They need to be revalued
Using the exchange rate at your year end date, with the difference going to the P&L
Currency revaluation
Occca (and your boss) are correct.
Correct treatment for subsequent transactions: The invoices received (which the Euros are eventually used to settle) should be recorded at the then current Euro-£ rate,
The balance sheet (at the following year end) will thus show
No Euro's held thus no further revaluation
No Supplier balance (cleared by the payment)
The P& L will simply record the correct sterling equivalent of the Euro bill.
If Euros ARE left over at year end, these will simply be revalued again at the year end rate and the exchange profit/loss taken to the P&L account.