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FEC Class Examples

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Phumzile Mpanza
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11 views

FEC Class Examples

Uploaded by

Phumzile Mpanza
Copyright
© © All Rights Reserved
Available Formats
Download as PDF, TXT or read online on Scribd
You are on page 1/ 6

EXCHANGE RATE QUOTATION

• R1 = $0.50 this is called an indirect quotation of a rand currency

Purchase a vehicle for $10 000 it is $10 000/$0.5 = R20 000

• $1 = R2.00 this is called a direct quotation of a rand currency

Purchase a vehicle for $10 000*R2 = R20 000

THERE ARE 3 DATES WHEN DEALING WITH FEC TRANSACTIONS

1. TRANSACTION DATE

• Free on board (FOB) – Delivered over the ship’s rail in the shipping country.
• Cost, insurance, Freight (CIF) – Delivered over the ship’s rail in the shipping country.
• Delivery duty paid (DDP) – Delivered at the destination port and import duties or custom
duties are paid.
• Delivery at terminal (DAT) – Offloaded at the destination terminal in the buyer’s
country/destination terminal.

If these no mention of any of the above terms and conditions, then use the delivery date.

2. SETTLEMENT/PAYMENT DATE

• The date on which payment changes hands

3. REPORTING/TRANSLATION DATES.

• The financial year end of the local entity.

Page 1 of 6
QUESTION 1

The following information concerning Puma Limited is presented to you:

Puma Limited is a South African company which sells baking machines. On 1 January 2017,
Puma Limited ordered 100 baking machines at a price of $2 000 each from a United States of
America company. The shipping documentation states that the risk and rewards will pass to the
buyer in terms of cost, insurance and freight (C.I.F.) terms and conditions.

On 15 January 2017, the baking machines were completely manufactured and ready for delivery.
The baking machines were delivered over the ship’s rail at the port of shipment
on 31 January 2017 at Texas, United States of America. The baking machines were offloaded
on 15 February 2017 in Richards Bay, South Africa. The baking machines on arrival in South
Africa must still be assembled before resale at a cost of R2 000 each in cash by Puma Limited.

The baking machines will be sold at a 20% mark up on cost price. On 31 December 2017, 30
baking machines had been sold. During the year 2017, three baking machines were returned to
the USA because of faulty parts and had to be written off from the company’s financial records.

The payment terms of the baking machines bought on credit are as follows:
Interest rate: 10% on outstanding creditors balance
Repayable: 1 January 2018 100% of creditor outstanding including interest accrued

Foreign exchange rates:


1 January 2017 R1 = $0.15 15 January 2017 R1 = $0.25
31 January 2017 R1 = $0.10 15 February 2017 R1 = $0.20
31 December 2017 R1 = $0.12 1 January 2018 R1 = $0.05
1 February 2018 R1 = $0.20 28 February 2018 R1 = $0.10

The financial year end of Puma Limited is 31 December.

It can be assumed that the foreign exchange rate changed at a constant rate.

YOU ARE REQUIRED TO:

1. Prepare the journal entries of Puma Limited for the year ended 31 December 2017 and 2018,
for the above transactions.

SHOW ALL CALCULATIONS

Page 2 of 6
QUESTION 1

JOURNAL ENTRIES OF PUMA LIMITED


R R
DEBIT CREDIT
31 January 2017
Inventory - machines 2 000 000
Foreign creditor/ loan 2 000 000
Recognition of inventory bought ($200 000/R0.10)
15 February 2017
Inventory - machines 200 000
Bank 200 000
Assembling costs capitalized (R2 000*100)
31 December 2017
Cost of sales (30/100*R2 200 000) 660 000
Inventory - machines 660 000
Cost of goods sold
Bank/ Debtor (R660 000*120%) 792 000
Sales 792 000
Revenue from sale of goods
31 December 2017
Interest accrued [($200 000*10%)/(0.10 + 0.12)/2]*11/12 166 667
Foreign creditor/ loan 166 667
Interest payable for the year
31 December 2017
Foreign creditor/ loan [$20 000/R0.12*11/12 – R152 778) 13 889
Foreign exchange gain 13 889
Translation of interest payable
31 December 2017
Foreign creditor/ loan 333 333
Foreign exchange gain 333 333
Translation of foreign creditor [$200 000/R0.12 - $200 000/R0.10)
31 December 2017
Inventory written off (3/100*R2 200 000) 66 000
Inventory 66 000
Inventories write off
1 January 2018
Foreign creditor ($200 000/R0.12) + ($18 333/0.12) 1 819 442
Foreign exchange loss ($218 333/R0.12 - $218 333/R0.05) 2 547 218
Bank ($200 000/R0.05) + ($18 333/0.05) 4 366 660
Payment of foreign creditor and interest accrued

Page 3 of 6
or

1 January 2018
Foreign creditor ($200 000/R0.12) 1 666 667
Foreign exchange loss ($200 000/R0.12 - $200 000/R0.05) 2 333 333
Bank ($200 000/R0.05) 4 000 000
Payment of foreign creditor
1 January 2018
Foreign creditor ($18 333/0.12) 152 775
Foreign exchange loss ($18 333/R0.12 - $18 333/R0.05) 213 885
Bank ($18 333/0.05) 366 660
Payment of foreign creditor and interest accrued

Page 4 of 6
QUESTION 2

The following information concerning Day Limited is presented to you:

Day Limited placed an order for cell phones inventory with Pin Limited that is situated in the United
States of America on 1 December 2015.

On 1 June 2016, Pin Limited shipped the cell phones to Day Limited on a delivery duty
paid (D.D.P.) basis. On 25 June 2016, the container with the cell phones docked in Durban South
Africa harbour. On 1 July 2016, the containers were cleared from customs and taken into
possession by Day Limited, who delivered it on the same day at their shop and ready to be sold.

The financial agreements for payment of the cell phones were the following:

• Selling price of all the cell phones charged by Pin Limited was $50 000 in total cost.
• Interest is calculated from the date that Day Limited took the significant risks and rewards
associated with ownership over from Pin Limited. The agreed interest rate is 10% per annum.
The interest is payable when the cell phones are paid for in full.
• Day Limited paid the total outstanding amount to Pin Limited on 30 June 2017.

The cell phones are sold using a mark-up of 30% on cost price. On 30 June 2017, 50% of the cell
phones had been sold (on credit). 1% of cell phones was broken and should be written off.

The financial year-end of Day Limited is 30 June.

The following foreign exchange rates are applicable:

1 December 2015 $1 = R6.00 1 June 2016 $1 = R7.55


25 June 2016 $1 = R7.50 1 July 2016 $1 = R7.00
1 March 2017 $1 = R7.40 30 June 2017 $1 = R7.20
1 August 2017 $1 = R7.15 2 August 2017 $1 = R7.00

It can be assumed that the foreign exchange rate changed at a constant rate.

YOU ARE REQUIRED TO:

1. Prepare all the relevant journal entries of Day Limited regarding the above transactions for the
full period ended 30 June 2017.

SHOW ALL CALCULATIONS

Page 5 of 6
QUESTION 2

JOURNAL ENTRIES OF DAY LIMITED


R R
DEBIT CREDIT
1 July 2016
Inventory – cell phones 350 000
Foreign creditor/ loan 350 000
Recognition of inventory bought ($50 000*R7.00)
30 June 2017
Cost of sales (50%*R350 000) 175 000
Inventory – cell phones 175 000
Cost of goods sold.
Debtor (R175 000*130%) 227 500
Sales 227 500
Revenue from sale of goods
30 June 2017
Inventory written off (1%*R350 000) 3 500
Inventory 3 500
Inventories write off
30 June 2017
Interest paid [($50 000*10%*(R7.00 + R7.20)/2)] 35 500
Foreign creditor/ loan 35 500
Interest accrued for the year
30 June 2017
Foreign creditor/ loan ($50 000*R7 + $5 000*7.10) 385 500
Foreign exchange loss ($50 000*(R7.00 - R7.20) + $5 000*(R7.20 - R7.10) 10 500
Bank ($55 000*R7.20) 396 000
Payment of foreign creditor

OR

JOURNAL ENTRIES OF DAY LIMITED


R R
DEBIT CREDIT
30 June 2017
Foreign creditor/ loan ($5 000*7.10) 35 500
Foreign exchange loss ($5 000*(R7.20 - R7.10) 500
Bank ($5 000*R7.20) 36 000
Payment of interest accrued
30 June 2017
Foreign creditor/ loan ($50 000*R7) 350 000
Foreign exchange loss ($50 000*(R7.00 - R7.20) 10 000
Bank ($50 000*R7.20) 360 000
Payment of foreign creditor

Page 6 of 6

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