Collection of Foreign Exchange

Accounting Questions
By : Kristi Indriyani

Kristi Indriyani - JIU

1.PT ABC is an entity incorporated in Indonesia with the financial reporting year ending
on December 31 and using Indonesian Rupiah (IDR) as its functional currency. On May
15, 2018, PT ABC purchased goods worth USD 100,000 from XYZ Co. when the
current exchange rate was USD1 = IDR9,900. XYZ Co. is an entity incorporated in the
United States that uses the US dollar (USD) as the functional currency.
Based on PSAK 10, foreign currency transactions must be recognized in IDR at the spot
rates on the transaction date, which are as follows:

Note, on that date PT ABC did not hand over USD to anyone, only received an invoice
worth USD100,000. The invoice value is then remeasured on PT ABC's books in IDR
using the spot rate on the transaction date. Trade payables are also known as trade
payables. Kristi Indriyani - JIU
2. It is assumed that as of December 31, 2018, PT ABC's trade payables in Example 1
above have not been paid. The exchange rate in effect on December 31, 2018 is USD1 =
IDR10,500. Trade payables are an example of a monetary item (liability), so that trade
payables that must be paid in USD at a fixed amount must be reported using the closing
rate (December 31, 2012) of IDR1,050,000,000.
The adjusting entry for presenting trade receivables at the closing rate is as follows:

Since the trade payables were initially recognized as IDR990,000,000, the account was
credited (plus) IDR60,000,000. Foreign Exchange Difference was debited (recognized as
loss) amounting to IDR60,000,000. After the above adjustments, the accounts receivable
to XYZ Co. with a balance of Rp1,050,000,000.
Kristi Indriyani - JIU
3. On October 1, 2018, PT GHI bought shares of several entities in America for speculative
purposes. Under PSAK 55, the reporting of investments in securities for speculative purposes
(trading) is based on fair value. The investment cost for shares issued by PT GHI is USD
120,000 and the fair value as of December 31, 2018 is USD165,000. The spot rates on
October 1, 2018 and December 31, 2018 were USD1 = IDR9,700 and USD1 = IDR9,600,
respectively.
On October 1, 2018, PT GHI debited investment in shares as follows:

Even though the cash paid in this transaction was in USD (foreign currency), at initial
recognition PT GHI recorded this investment in the functional currency (IDR) at the spot rate
prevailing on the transaction date, so that it amounted to IDR1,164,000,000 (USD120,000 ×
IDR9,700). Kristi Indriyani - JIU
Stock in this case are examples of non-monetary items that are reported at fair value, so
that the fair value of the asset must be remeasured using the exchange rate prevailing at the
time the fair value was determined, namely at the closing rate on December 31, 2018. The
amount of investment that must be reported in the position statement finance is
IDR1,584,000,000 (USD165,000 × IDR9,600).
The adjusting entry for December 31, 2018 is as follows:

The difference between the fair value of investment in shares measured at the closing rate
(IDR1,584,000,000) and cost measured at the spot rate on transaction date
(IDR1,164,000,000), is recognized as unrealized investment gain and is reported as a
component of income in profit and loss calculations. Because investment is not a monetary
item, there is no recognition of foreign exchange gains / losses as regulated in PSAK 10.
Kristi Indriyani - JIU
4. PT BATIK is an entity incorporated in Indonesia and uses the fiscal year ended December 31. The functional currency
of PT BATIK is Indonesian Rupiah (IDR).
On July 12, 2018, PT BATIK purchased merchandise (supplies) on credit worth USD10,000 from SAM Co. Payment by
PT BATIK was made on 20 November 2018.
The exchange rates on 12 July 2018 and 20 November 2018 were USD1 = IDR9,400 and USD1 = IDR9,700,
respectively.
With regard to the provisions of PSAK 10, how did PT BATIK record the purchase of the merchandise on July 12 2018?
Even though on that date, PT BATIK only received an invoice and had not submitted the payment in USD, the
bookkeeping had to be done in PT BATIK's functional currency (IDR) at the spot rate prevailing on the transaction date
as follows:

Inventories are non-monetary assets which are initially recognized at cost. Trade payables in USD represent monetary
liabilities. The amount (IDR94,000,000) is determined by multiplying the cost in USD (USD10,000) with the spot rate on
July 12, 2018 (IDR9,400).

Kristi Indriyani - JIU

How does PT BATIK record invoice payments on November 20, 2018? Although it is
possible to pay USD10,000 with USD already owned, PT BATIK's bookkeeping will still
use IDR (functional currency).
Note, the amount of trade payables is remeasured at the spot rate on November 20, 2018
so that it becomes a balance of IDR97,000,000. The difference with the originally
recorded debt (IDR 94,000,000), which is IDR 3,000,000, is a foreign exchange loss
recognized as an expense component in profit or loss. The debt settlement journal above
can be combined into one journal as follows:

Kristi Indriyani - JIU

5. Return to the case of PT BATIK as illustrated in Example 5. Assume, PT BATIK's trade payables were only paid on
February 8, 2019. The spot rate in effect on December 31, 2018 (statement of financial position date) was USD1 =
IDR9,500, while on the 8th February 2019 (upon settlement) is USD1 = IDR9,700.

What journals are required and how do I record the above transactions in PT BATIK's books? In accounting terms, there
are three events that need to be recorded in PT BATIK's books, namely on July 12, 2018 (when invoices / goods are
received), December 31, 2018 (statement of financial position date), and February 8, 2019 (when invoices are paid). The
journals are presented as follows:

Note that trade payables which are monetary items are remeasured on December 31, 2018 (at the time of closing the books)
and February 8, 2019 (immediately before derecognition).
How much is PT BATIK's account payable to SAM Co. on December 31 2018 and February 8 2019? As of December 31,
2018, trade payables were reported to amount to IDR95,000,000 (USD10,000 × IDR9,500). On 8 February 2019, trade
payables were remeasured to amount to IDR97,000,000 (USD10,000 × IDR9,700).
What is the foreign exchange loss recognized in 2018 and 2019, respectively? The recognized foreign exchange loss in
2018 was IDR 1,000,000 (IDR95,000,000 - IDR94,000,000) and in 2019 was IDR 2,000,000 (IDR97,000,000 -
Kristi Indriyani - JIU

IDR95,000,000).
6. Lincoln Co. is a multinational company headquartered in the United States. As of December 31, 2018,
Lincoln Co. has trade receivables with a balance of USD81,300 and trade payables with a balance of
USD38,900 before the adjusting entry entries are made.
Analysis of the balances of the two ledger accounts reveals the following:

Accounts receivable
• USD28,500 in functional currency (USD).
• SEK20,000 (Swedish Krona), expressed in USD at the spot rate on transaction date to USD11,800.
• GBP25,000 (British pound sterling), expressed in USD at the spot rate on transaction date to be
USD41,000.

Accounts payable
• USD6,850 in functional currency (USD).
• CAD10,000 (Canadian dollar), expressed in USD at the spot rate on transaction date of USD7,600.
• GBP15,000 (British pound sterling), expressed in USD at the spot rate on transaction date of USD24,450.

The spot rates for SEK, GBP and CAD as of December 31, 2018 were USD0.66, USD1.65 and USD0.70,
respectively.

Kristi Indriyani - JIU

What is the amount of trade receivables that should be reported in the statement of financial position as of
December 31, 2018? The amount of trade receivables at the end of 2018 is USD82,950, calculated as
follows:

What is the amount of trade payables that should be reported in the statement of financial position as of
December 31, 2018? Total trade payables at the end of 2018 were USD38,600, calculated as follows:

Kristi Indriyani - JIU

What the net foreign exchange gain / loss should be reported in Lincoln Co.'s profit and loss. for 2018 related to
trade receivables and trade payables above? The total accounts receivable per book of accounts is USD81,300
(USD28,500 + USD11,800 + USD41,000). Total trade receivables that are remeasured at the spot rate on 31
December 2018 is USD82,950. The difference, namely USD1,650 is the gain on foreign exchange.

The total accounts payable per bookkeeping is USD38,600 (USD 6,850 + USD 7,600 + USD24,450). Total trade
payables which are remeasured at the spot rate on December 31, 2018 is USD38,600. The difference, which is
USD300, is also a foreign exchange gain.

Thus, the net foreign exchange difference is a gain, amounting to USD1,950 (USD1,650 + USD300).

How do you record cash receipts for all of the above accounts receivable on a specific date in 2019 when the SEK
and GBP spot rates are USD0.67 and USD1.63, respectively? The entries for recording cash receipts from
receivables in USD are as follows:

USD is Lincoln Co.'s functional currency, so there is no foreign exchange gain or loss from the above transaction.
Kristi Indriyani - JIU
The journal for recording cash receipts from accounts receivable in SEK is as follows:
Please note that the amounts in the journal above are in USD (functional currency). The balance of Accounts Receivable
(SEK) before derecognition was USD13,400 (SEK20,000 × USD0.67). The settlement of the receivables resulted in a
foreign

The entries for recording cash receipts from receivables in GBP are as follows:
Please note that the amounts in the journal above are in USD (functional currency). The balance of Accounts Receivable
(GBP) before derecognition was USD40,750 (GBP25,000 × USD1.63). The settlement of the receivables resulted in a
foreign exchange difference of USD500 (USD40,750 - USD41,250) which was a loss.

Kristi Indriyani - JIU

How do you record cash payments to pay off all trade payables above on a specific date in 2019 when the
spot rates when the spot rates CAD and GBP are USD0.71 and USD1.62, respectively?

Kristi Indriyani - JIU

 Exercise
1. On October 1, 2018, Peerless Incorporation located at The United States buys the supplies on credit
from Tokyo Incorporation located in Japan for ¥ 2,000,000. Debt payment held on April 1, 2019. Direct
exchange rate equivalent to US $ from ¥ 1 is:
October 1, 2018 is ¥ 1 = $ 0.0070.
December 31, 2018 is ¥ 1 = $ 0.0080.
April 1, 2019, is ¥ 1 = $ 0.0076.
Question: Keep a journal of the transaction!
2. On August 1, 2018, PT. Bahana which is located in Indonesia purchased equipment on account from
the Willy Company located in England for £ 100,000. Debt payments will be made on February 1 2019.
The exchange rate equivalent to Rp from £ 1 is:
The date of 1 August 2018 is £ 1 = IDR 3,755.
As of 31 December 2018 it is £ 1 = IDR 3,730.
February 1, 2019 is £ 1 = IDR 3,723.
Question: Keep a journal of the transaction!

Kristi Indriyani - JIU

3. On August 1, 2018, PT. Kalbe which is located in Indonesia is selling merchandise on account of the
Willy Company located in England for £ 200,000. Accounts receivable collection will be conducted on
February 1 2019 and on 5 February 2019 convert £ 200,000 into eyes rupiah money. The exchange rate
equivalent to IDR of £ 1 is:
August 1, 2018 is £ 1 = IDR 3,850.
As of 31 December 2018 it is £ 1 = IDR 4,600.
February 1, 2019 is £ 1 = IDR 4,360.
5 February 2019 is £ 1 = IDR 4,550.
Question: Keep a journal of the transaction!
4. On 26 November 2010, PT. F imports raw materials with the following values, CIF US $ 10,000,
Import Duty 5%, Import VAT 10%, PPh Article 22 which is collected by Customs and Excise 2%.
Exchange rates for KMK 9,000 and KTBI 9,100. On December 26, 2010 PT. F paid the import debt, on
that date Kus KMK 9,050 and KTBI 9,150.
Question: Keep a journal of the transaction!
5. On February 24, 2010, PT. Dumadi exports with the following value, CIF US $ 40,000. Exchange rates
for KMK 9,500 and KTBI 9,400. On March 25, 2010 PT. F received payment for the sale, on that date
the exchange rate of KMK was 9,550 and KTBI was 9,500.
Question: Keep a journal of the transaction!
Kristi Indriyani - JIU