Question

On 31 March 2017, CQ Ltd sold some plants on credit to a company in France for 7,000 euros. The exchange rate at that date was 1euro: £0.80. No entry has been made in the accounts for this transaction.

How to deal with it in the statement of financial position and statement of profit or loss and statement of changes in equity?

Subtract from ...PPE?

Answer 1

Solution:

Journal Entry:

Vendor A/c Dr. £5600 (7000 euros*£0.80)

Machinery A/c Cr. £5600 (7000 euros*£0.80)

(Being Machinery sold on credit)

According to journal entry:

1. Statement of financial position

In this transaction, there was an increase to one asset i.e. Vendor( Account receivables) and a decrease to another asset i.e. Machinery. But overall total asset changes by 0, because the increase and decrease in assets to the same value.

2. Statement of profit or loss account

there are no revenues or expenses, so it is not affected by the profit or loss account.

3. Statement of changes in equity

There is no change in stockholder equity and liability, also it is not affected to Statement of changes in equity.