Tuesday, 8 April 2014

Be Careful when Selling Assets Denominated in Foreign Currency

I have often seen that gains and losses on assets denominated in foreign currencies are calculated incorrectly. It is incorrect to calculate the gain or loss  on the sale in foreign currency then translated it to Canadian dollars at the average exchange rate.  What is correct is to arrive at the cost in Canadian dollars at the exchange rate ruling at the time of purchase and then calculate the sales in Canadian dollars by applying the exchange rate ruling at the time of sales to the sales proceeds in foreign currency.  The difference is gain or loss in Canadian dollars. If you don't do this you overstate your gain when Canadian dollar is rising and understate your gain when it is falling.

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1 comment:

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