Two years ago we had a customer pay deposits against a machine being manufactured in the UK. The deposits were in Euro and totalled 1,111,500 Euro representing 95% of the machine which when translated at the bank came to £839,556 (implied rate of 1.324). However, the customer went belly up and we held the deposits in the balance sheet at a year end rate of 1.1255 bringing the creditor up to £987,561 in our books ( as this could be the exposure if asked to repay deposit). After discussions with the administrators the machine is now being sold for 58,500 Euro which at todays euro rate (appx 1.13) is worth approximately 51,770.
Question is, when the machine is taken to turnover should it be recognised at 51,770 + 987,561 or 51,770 + 839,556 (and a 148,005 fx gain in the P&L)?
Any guidance and thoughts appreciated.
Replies (4)
Please login or register to join the discussion.
Depends on invoice value I think
Hi - I think you may first have to record the contracted for invoice value, in £s or €s with the latter at an average rate or the rate determined by your accounting policy. This will give you a sale value against which you set the £987.5K b/f (which is now fixed in stone) and the £52K received. From what you say you are likely to have a surplus which I would record as fx gain.
If however you have a loss I would, on balance, treat that as a bad debt as you have already recorded fx losses when building the creditor up to £987.5K.
Having said all that it doesn't sound neat & tidy, but it's near my bedtime, so maybe a younger/fresher brain can apply itself.
Consider how you would account in sterling
My suggestion would be to consider how you would account for it in sterling and then use appropriate f/x rates at relevant dates. I'm a little unclear as to the timeline. Has the same machine been sold twice?
-- Keith