Deferred Income

Funds received in USD transferred to Balance Sheet

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Client has invoiced in USD in advance and recognises revenue based on work completed.

The USD balaace in Deferred Income account on the balance sheet should be translated at the historical exchange rate and not the closing exchange rate under FRS102 ?

Thank you

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By paul.benny
02nd Dec 2020 13:53

If you converted the entire invoice value to GBP on issue, and then deferred the GBP amount not yet realised, there's no re-conversion needed.

If the work is going to be performed over an extended period or if the amounts were material, I'd maybe want to consider in more detail.

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By taxwizard
02nd Dec 2020 14:37

My client received 5m USD in advance for software subscription (which was invoiced) and entered under deferred income (USD) in the Balance Sheet. 1/12 was recognised revenue each month but it crossed the accounting years so around 2M USD was showing under deferred income as at the year end so think this does not need to translated at closing exchange rates

Base Currency is GBP

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Replying to taxwizard:
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By paul.benny
02nd Dec 2020 15:54

Sounds material then. I stand by my original answer, though.

The conversion to GBP crystallises when you book the invoices. If you record the invoices prior to payment, there may be a gain or loss if the exchange rate moves between those invoice and payment. But once an invoice is settled, there is no possibility of gain or loss on the transaction as a result of currency movements.

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Replying to paul.benny:
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By taxwizard
03rd Dec 2020 13:36

Thank you for taking time to reply. I do agree with you.

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