Trial balance in different currencys

[jk.hira17]

Hi,
We are preparing Final Accounts in two different currency's.
One is W.AFRICA currency FCFA and the other is USD.
When we prepare Trial Balance in FCFA we are getting Exchange LOSS
and when we are preparing Trial Balance in USD we are getting Exchange Gain.
Why is it so? Why not both the Trial Balances are showing the same report?
We are taking average exchange rate for any given year.
Exchange Rate for the year 2002 is taken as 649 FCFA against DOLLAR.
Exchange Rate for the year 2003 is taken as 530 FCFA against DOLLAR.
Balance are Brought Forward and Transations are multiplied by Exchang Rate.
Please explain and guide.

Accountant jaikishan.

 

[bklynboy]

Since the FCFA has weakened against the USD from 649 to 530 you will get a FCFA loss - meaning that the value of the FCFA translates to less FCFA for every USD. A simple example: $1USD in 2002 was reflected as 649FCFA but in 2003 it declines to 530FCFA and an exchange loss is created for that reduction in FCFA net assets.

For the USD statement the opposite happens. Meaning in 2002 it took 649FCFA to get 1USD but in 2003 only 530FCFA is needed to get the same 1USD - this creates a gain on USD.

A simple way to think about it is that these are mirror images meaning if I hold FCFA and the value goes down relative to the USD then the other side holding the USD makes a gain.

 

[jk.hira17]

Trial balance prepared in 2 different currencys

Respected Sir,
I ThankYou and Appreciate your efforts to answer my query.
Further to our discussion I need clarifications for the following:
In continuance to the same example I would like to understand when the exchange rate
of FCFA against USD changes from 649 to 530 has the FCFA become strong against dollar or weak against dollar. How should we understand is it strong or weak please explain.

Thanks and Regards
JaiKishan
Accountant.

 

[bklynboy]

The FCFA is strengthening when it can convert into more foreign currency. so in your example when it goes from 649 to 530 it strengthened because it takes less FCFA to convert to the same 1USD