CG78328 - Foreign currency: foreign currency bank accounts: aggregation of debits and credits: example for periods up to 5 April 2012

CG78327 describes an approach to computing gains and losses in connection with a foreign currency bank account where there are many transactions. This paragraph provides a worked example to illustrate that approach.

Consider an account denominated in US dollars to which TCGA92/S252(2) (sums representing currency acquired for personal expenditure) does not apply. The account is subject to many credit and debit entries in the course of a year. The monthly totals of credits and debits are as shown below. Also shown is the monthly average exchange rate for sterling to dollars.

- Total credits/$ Total debits/$ Avge exchange rate
April 7520 5000 0.504400
May 8100 6500 0.508768
June 7570 7575 0.508343
July 9230 6800 0.502694
August 6730 9250 0.528316
September 8210 5420 0.554933
October 7970 6400 0.589352
November 6990 7500 0.651597
December 15730 17650 0.672184
January 5580 4530 0.690832
February 7260 7240 0.692636
March 8340 7950 0.704384
TOTAL 99230 91815  

The dollar (credit) balance at the start of April is $75,425 and the total allowable cost of the asset is £49,383.

The period of aggregation is one month. The computation begins with April. The results of computations are rounded to the nearest whole number before being used in further computations.

April gain/loss

Step 1: Add the total of the dollar credits in April to the opening balance:

$75,425 + $7,520 = $82,945

Step 2: Determine the expenditure allowable in respect of this by translating the April credits into sterling using the average exchange rate:

£49,383 + (7,520 x 0.5044) = £53,176

Step 3: Determine the dollar balance carried forward by deducting the total of the debits in April:

$82,945 - $5,000 = $77,945

Step 4: Determine the allowable expenditure attributable to the debit amount using the A/(A+B) fraction applied to the total allowable expenditure as computed above:

5000/(5000+(75,425 + 7,520 - 5,000)) x £53,176 = £3,205

Step 5: Compute the gain or loss on the disposal:

Proceeds £2,522 (5,000 x 05044)

Allowable expenditure £3,205 see above

Loss £683

Step 6: Compute the allowable expenditure in respect of the $77,945 balance carried forward by deducting the expenditure allowed in this computation:

£53,176 - £3,205 = £49,971

Repeat the process for each successive month, carrying the dollar balance and the remaining allowable expenditure forward to the next month:

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May gain/loss

Step 1 (Dollar balance before debits): $77,945 + $8,100 = $86,045

Step 2 (total allowable expenditure): £49,971 + (8,100x0.508768) = £54,092

Step 3 (Dollar balance carried forward): $86,045 - $6,500 = $79,545

Step 4 (apportion allowable exp.): £54,092 x 6,500/(6,500+77,945+8,100-6,500) = £4,086

Step 5 (compute gain or loss): (6,500 x 0.508768) - £4,086 = LOSS £779

Step 6 (allowable expenditure carried forward): £54,092 - £4,086 = £50,006

The results of the computations are shown in the following table:

- Step 1 Step 2 Step 3 Step 4 Step 5 Step 6
- Dollar balance before debits. Total allowable expenditure Dollar balance carried forward Exp. re allowed disposal Gain or loss Allowable expenditure carried forward
April $82,945 £53,176 $77,945 £3,205 £683 loss £49,971
May $86,045 £54,092 $79,545 £4,086 £779 loss £50,006
June $87,115 £53,854 $79,540 £4,683 £832 loss £49,171
July $88,770 £53,811 $81,970 £4,122 £704 loss £49,689
August $88,700 £53,245 $79,450 £5,553 £666 loss £47,692
September $87,660 £52,248 $82,240 £3,230 £222 loss £49,018
October $90,210 £53,715 $83,810 £3,811 £39 loss £49,904
November $90,800 £54,459 $83,300 £4,498 £389 gain £49,961
December $99,030 £60,534 $81,380 £10,789 £1,075 gain £49,745
January $86,960 £53,600 $82,430 £2,792 £337 gain £50,808
February $89,690 £55,837 $82,450 £4,507 £508 gain £51,329
March $90,790 £57,205 $82,840 £5,009 £591 gain £52,196
TOTAL - - - - £1,025 loss -