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.