Accounting Online Program Certification Practice Test

What gain is recorded by Abercorn Ltd from the transaction with Prima SA of France due to exchange rate changes?

1. €1705 Gain

2. £1389 Gain

3. £1974 Gain

4. Both £1389 and £1974 Gain

The correct answer is: Both £1389 and £1974 Gain

In this scenario, Abercorn Ltd is likely dealing with a foreign transaction that involves currency exchange. When currencies fluctuate, it can lead to gains or losses when the currency in which a transaction is recorded is different from the currency in which it is settled. The gains noted here represent the differences resulting from these exchange rate changes. The mention of both £1389 and £1974 as gains suggests that Abercorn Ltd might have experienced multiple recorded gains due to varying exchange rates at different points in the transaction process. For instance, one gain may have resulted from an earlier exchange rate that was more favorable, while the other could reflect a more recent set of market conditions or transactions related to the same underlying transaction, leading to these different amounts being recognized. In essence, recognizing both gains indicates a thorough accounting approach, allowing Abercorn Ltd to capture all relevant financial advantages arising from the exchange rate fluctuations during the course of their dealings with Prima SA. This nuanced understanding of foreign exchange impacts on financial transactions is critical for accurate reporting and helps ensure that the financial statements reflect the true economic position of the company.