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You recorded a foreign currency Term Deposit of US$100,000.00 with a period exchange rate of 0.72USD:1SGD. When the exchange rate has changed to 0.73USD:1SGD at the period end, MoneyWorks revalue the foreign currency. An exchange journal of debiting the Exchange Gain/Loss account and credit the Term Deposit account of S$1,902.69 passed automatically into MoneyWorks accounting system.
Working:
Original rate: US$100,000 / 0.72 = S$138,888.89
Adjusted rate: US$100,000 / 0.73 = S$136,986.30
Exchange Loss: 138,888.89 - 136,986.30 = $1,902.59
After revalued the currency, you realised that instead of recording the deposit of US$100,000 into a single Term Deposit account, it should be separated into two Term Deposit accounts. That is, US$70,000 for the Term Deposit 1 account and US$30,000 for the Term Deposit 2 account.
Assuming you reclassify the account at the period end via a Fund Transfer method. You transfer US$30,000 from the Term Deposit 1 account to the Term Deposit 2 account at the period end. The journal behind the fund transfer is:
Debit the Term Deposit 2 account 30,000
Debit the Term Deposit 2 ~ Delta account 11,095.89
Credit the Term Deposit 1 account 30,000
Credit the Term Deposit 1 ~ Delta account 11,095.89
Since the exchange rate has changed, the fund transfer will automatically pick up the exchange rate of 0.73USD:1SGD.
Although the amount in the original term deposit account has reduced from US$100,000 to US$70,000, the exchange gain/loss account remain unchanged as the revaluation of currency is based on US$100,000 at 0.72USD:1SGD.
What if the reclassification of account has recorded before the exchange rate changed? Will there be any changes in the exchange gain/loss?
You record the funds transfer (reclassification of account) of US$30,000 from Term Deposit 1 account to the Term Deposit 2 account with the exchange rate of 0.72USD:1SGD. The journal behind the transfer is:
Debit the Term Deposit 2 account 30,000
Debit the Term Deposit 2 ~ Delta account 11,666.67
Credit the Term Deposit 1 account 30,000
Credit the Term Deposit 1 ~ Delta account 11,666.67
When the exchange rate has changed at the period end, MoneyWorks revalue the currency, the exchange journal:
Debit the Exchange Gain/Loss account 1,902.59
Credit the Term Deposit 1 account 1,331.81
Credit the Term Deposit 2 account 570.78
Working:
Term Deposit 1:
Original Rate: US$70,000 / 0.72 = S$97,222.22
Adjusted Rate: US$70,000 / 0.73 = S$95,890.41
Exchange Loss: S$(97,222.22 - 95,890.41) = S$1,331.81
Term Deposit 2:
Original Rate: US$30,000 / 0.72 = S$41,666.67
Adjusted Rate: US$30,000 / 0.73 = S$41,095.89
Exchange Loss: S$(41,666.67 - 41,095.89) = S$570.78
Total Exchange Loss: S$(1,331.81 + 570.78) = S$1,902.59
From the above examples, both reclassifications of account method derive the similar result. That is, have a similar exchange loss S$1,902.59.
The Balance Sheet printed from both method have a similar debit balance of S$95,890.41 in the Term Deposit 1 account and S$41,095.89 in the Term Deposit 2 account.
Working:
Method 1:
Term Deposit 1:
Debit US$100,000 / 0.73 = S$136,986.30
Credit US$30,000 / 0.73 = S$41,095.89
Debit Balance: S$95,890.41
Term Deposit 2:
Debit: US$30,000 / 0.73 = S$41,095.89
Method 2:
Term Deposit 1: US$70,000 / 0.73 = S$95,890.41
Term Deposit 2: US$30,000 / 0.73 = S$41,095.89
Whether you did the reclassify of an account before or after the currency revaluation, MoneyWorks takes care of it.
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