Exchange Rate for foreign country accounting

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Never Give up... (Querist)
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20 May 2024 Hello,

My query is related to exchange rate.

how to book exchange in Africa region book keeping where exchnage rate is fluctuating rapidly.

For eg: exch rate 01.01.2023 - 6/ usd and Exch rate 31.12.23- 12/usd.
this way, if m booking forex then its showing huge forex loss in books.

Which is best website for exchange rate.

I am converting only Balance sheet items like Foreign Creditors/Debtor and USD Bank Loan.

Is this correct way?

Second) Same way Land which was also bought in USD on 31.12.22 @6, can i book exchange rate on this land also? or only way is revaluation?
we have done revaluation in May 2024, but I want to take the revaluation as on 31.12.23. is it possible?

Thanks in Advance

Asha Kanta Sharma

Asha Kanta Sharma

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07 July 2024 Managing exchange rates in regions with significant fluctuations like Africa requires careful consideration to accurately reflect financial positions and avoid misleading results due to currency volatility. Here’s how you can approach booking exchange rates and dealing with transactions in such scenarios:

### Booking Exchange Rates

1. **Selecting Exchange Rates:**
- Use the exchange rate on the date of the transaction for specific items like foreign creditors/debtors and USD bank loans. This practice ensures that each transaction is recorded at the rate applicable at the time, reflecting the actual financial position at that date.

2. **Impact on Financial Statements:**
- Fluctuating exchange rates can lead to forex gains or losses in financial statements. These gains or losses should be recognized in your income statement to accurately depict the financial performance.

3. **Website for Exchange Rates:**
- Reliable sources for exchange rates include financial news websites, central bank websites, and commercial banks that offer historical exchange rate data. Websites like XE.com, OANDA, or major financial news outlets often provide comprehensive exchange rate information.

### Treatment of Land Purchase in USD

1. **Initial Recognition:**
- When land is purchased in USD, record it at the exchange rate prevailing at the date of acquisition. This establishes its initial cost in your books.

2. **Subsequent Revaluation:**
- If you perform a revaluation of the land, this adjustment reflects changes in the fair value of the land due to market movements, not changes in exchange rates. Revaluation should ideally be done periodically and consistently applied based on your company's accounting policies.

3. **Revaluation as of 31.12.2023:**
- If you wish to revalue the land as of 31.12.2023, you can conduct a revaluation exercise using the exchange rate applicable at that date. This update will adjust the carrying amount of the land to its current fair value, capturing any changes in value due to market conditions.

### Summary

- **Booking Exchange Rates:** Use date-specific exchange rates for transactions to accurately reflect financial positions.
- **Websites for Exchange Rates:** Choose reliable sources for exchange rate data to ensure accuracy.
- **Treatment of Land:** Record initial purchase at historical exchange rates, and revalue periodically to reflect fair value changes.

By following these practices, you can manage exchange rate fluctuations effectively in your financial reporting, providing clarity and transparency in your company's financial statements. If in doubt, consulting with a financial advisor or accountant familiar with international accounting standards can provide tailored guidance for your specific circumstances.