Need help with calculating foreign exchange gains/losses

tim at nomuka.com tim at nomuka.com
Wed Jan 25 17:24:08 EST 2017


Hi everyone,

I'm doing the accounts for a small remittance business sending money 
from Australia to Tonga to help the Tongan community here in Australia. 
Here is how it works:

1. The business sends a big (about AUD 5000 - AUD 10000) amount of money 
to Tonga every few days, and gets a good exchange rate. For the sake of 
the example, assume it is AUD 1 = TOP 1.6

2. Customers now "purchase" TOP from the business' Tongan account and it 
gets paid out to their families or whoever in Tonga. The business sells 
the TOP at a slightly worse rate than what it bought it for. For 
example, AUD 1 = TOP 1.57 (The amounts people send are usually quite 
small - perhaps AUD 200 on average, so that's why all the numbers in the 
example might seem small to some people used to much bigger 
transactions).

So the general thing is that there is a foreign exchange gain of about 2 
or 3% depending on the margin. These gains are realised almost 
immediately - usually within a few days at most. The business doesn't 
want to be exposed to too much fluctuation in the exchange rate - it's 
transferring money, not speculating on exchange rates, and needs the 
gains to cover expenses.

Now for taxation purposes in Australia, I believe gains (or losses) need 
to be calculated using the FIFO method (there are other alternatives, 
but I understand how FIFO works, so I'll stick with this). I'm pretty 
sure GnuCash should be able to do this calculation using lots. The help 
pages explain things using share transactions. But for the life of me, I 
cannot work out how to actually do it for foreign currency transactions. 
Do I need to create lots in the trading accounts or something????

Is anyone able to provide tips, links to help pages or whatever?

Cheers,

Tim Hume.


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