Question

Let’s suppose you (USA dealer) imported a product from German on Dec 1, 2018 at € 300, payable in 60 days. You sold the product in the US market at $400 in cash on Dec 15, 2018. The company's fiscal year ends on Dec 31. You paid to your German supplier on Feb 1, 2019. Below, please find the exchange rate information: Dec 1, 2018: 0.6 €/$. Dec 31, 2018: 1.2 €/$. Feb 1, 2019: 1.5 €/$. What was profit or loss from these transactions (in 2018 and 2019 combined)?

Answer 1

Answer:

Combine profit of 2018 and 2019 is $200 + (-$100 loss) = $100 profit.

Explanation:

The value of imported product from Germany as on 1st Dec. 2018 = 300 Euro

The exchange rate as on 1st Dec. 2018 = 0.6 Euro/Dollars

The value of imported product in dollars =$\frac{300}{0.6} = 500 dollars.$

Since product sold in cash for $400 as on 15th Dec.

Since fiscal year end on 31st Dec. So, find the profit and loss.

Profit and loss = Sold price - Product price in dollars

Profit and loss = $400 - $500

Thus, loss for the year 2018 = $100

Now the dealer will pay  on 1st Feb 2019 and on this date the exchange rate is 1.5 Euro/Dollars. The dealer have to pay the 300 Euro. So,on 1st Feb the value of 300 Euro in dollars will be: $= \frac{300}{1.5} = 200.$

Now, dealer will pay only $200 which is equal to 300 Euro. However, dealer had received $400 from sale. So. Profit is $400  - $200 = $200.

Thus, the loss of 2018 is $100 and profit of 2019 is $200.

Combine profit of 2018 and 2019 is $200 + (-$100 loss) = $100 profit.