Page 22 - Chapter 22 - Foreign Exchange (Cont.)

Example

A Ltd’s year of assessment ends on the last day of February. On 1

December 2014, the company entered an agreement to purchase
trading stock on 31 March 2015 from a supplier in another country for

a foreign currency amount of FC100 000. A five-month - FEC is
entered into on 1 December 2014 in expectation of the future

transaction. The forward rate is FC1 = R7,20. On 31 March 2015 the
transaction goes ahead according to the contract and trading stock of

FC100 000 is acquired on credit. The debt is paid on 30 April 2015.
All trading stock was sold by the end of February 2016.

Assume that the exchange rates on the relevant dates are as follows:

• 1 December 2014 : spot rate FC1 =
R6,60

• 28 February 2015 : spot rate FC1 =

R7,00

• 28 February 2015 : Forward rate FC1 = R7,23

• 31 March 2015 : spot rate FC1 = R7,50

• 30 April 2015 : spot rate FC1 = R7,60

Calculate the effect on the taxable income of A Ltd.