Transactions in foreign currencies are sometimes a nightmare.Obviously, we are trading with each other, our own currencies are different and foreign exchange rates are jumping up and down constantly.In most cases, no financial liability related to firm commitments is recognized until the goods are delivered (or shipped, depending on Incoterms), and the risks and rewards of ownership have passed. Your statement of financial position will show the prepayment at the historical rate, that is in amount of EUR 22 403.On 11 February 20X1, recognition criteria for recognizing a machine in IAS 16 are still NOT met. At this point, you cannot control the machine and as a result, “the future economic benefits flowing to the entity” are not probable. This is exactly the date when you gain control over the machine.Therefore, you do not recalculate anything and your entry is: Now you may argue – but, the date when a machine appears in your financial statements is on delivery, so we should recalculate the full amount of USD 100 000 with the rate applicable on delivery.
Update 05 February 2015: There was a great discussion on Linked In in relation to this topic.
This section explains what users need to know to understand and analyze accounting information provided in the financial statements.
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Your real cost incurred is USD 30 000 translated with exchange rate on the date of the first payment and USD 70 000 translated with exchange rate on the date of delivery. Try to look at it this way: most non-monetary assets stop being “foreign currency” assets at the moment you recognize them in your accounts.
Please, just realize that the prepayment of USD 30 000 is no longer a USD asset. So, you don’t have an asset (prepayment) of USD 30 000 in your books – instead, you have an asset (prepayment) of EUR 22 403. You record your payment with the spot exchange rate on the date of payment and any difference is recognized in profit or loss.