Phan Ltd., a Canadian company, sold goods to a foreign customer for 1,000,000 foreign currency (FC)units, which was equivalent to $500,000 CAD. By the time the customer paid Phan, the exchange rates had changed and 1,000,000 FC units was equivalent to $515,000 CAD. How should the resulting $15,000 CAD difference between the sale and payment dates be treated?

Question

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The $15,000 CAD difference is a realized gain for Phan Ltd. because it represents an actual increase in the value of the FC units received compared to the original sale. This should be recorded in the company's income statement as a separate line item, such as "foreign exchange gain." Option A is incorrect because the company did not actually make more sales revenue, only gained from a change in exchange rates. Option B is incorrect because the difference is not related to the cost of sales. Option D is incorrect because the gain is realized, meaning it has actually occurred and is not just a potential or unrealized gain.

Phan Ltd, a Canadian Company, Sold Goods to a Foreign Customer