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|
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.
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 0.5044)|
|Allowable expenditure||£3,205||see above|
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:
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|