Page 114 - SAIT Compendium 2016 Volume2

PN 4/1999 Income Tax acT: PracTIce noTes Debt
Ruling exchange rates:
Date of previous translation (28-02-98) Date of realisation (31-05-1998)
Exchange difference:
[(6,4900 – 6,5600) x $100 000]
Forward exchange contract
Ruling exchange rates:
Date of previous translation (28-02-98) Date of realisation (31-05-1998)
Exchange difference:
[(6,4900 – 6,5600) x $100 000]
NET TAX RESULT
(+R0 – R6 000 – R6 000 – R7 000 + R7 000)
RECONCILIATION
Cost price of stock on transaction date
($100 000 x 6,3700)
Rands paid to purchase $100 000 on 31-05-1998 ($100 000 x 6,4900)
Net loss
6,4900 6,5600
6,4900 6,5600
PN 4/1999
R7 000 loss
R7 000 gain
R12 000 loss
R637 000 R649 000
R 12 000
EXAMPLE 6
DEBT (RECEIVABLE IN DOLLARS) HEDGED BY A FORWARD EXCHANGE CONTRACT FOR A PORTION OF THE PERIOD
On 1 December 1997 a South African company in the packaging industry concluded a contract with a business in America. In terms of the contract the company sold a used packaging machine for $300 000. Ownership was transferred on 10 January 1998 (date of accrual), on shipping of the machine. Settlement took place four months later on 10 May 1998. The company entered into a forward exchange contract on 1 February 1998 in terms of which $300 000 would be sold three months later on 1 May 1998 at a forward rate of 6,4900. The company’s nancial year ends on 28 February. The forward rate was used at year end to translate the debt for accounting purposes.
MARKET RATES FOR PURPOSES OF THE EXAMPLE
DATE
SPOT RATE R/$
FORWARD RATE
3 MONTHS
2 MONTHS
10-01-1998
6,4100
01-02-1998
6,4300
6,4900
28-02-1998
6,4500
6,5000
01-05-1998
6,5300
10-05-1998
6,5400
106 SAIT CompendIum oF TAx LegISLATIon VoLume 2