As reporting is done only in the home (native) currency, does this mean that any Income or Expense has to be designated in the native currency only, even if a transfer doesn’t actually happen?
For example if an entity`s home currency is USD and the same entity has a bank account in France in EUR. I understand that transactions will involve forex gains or losses. Suppose interest (an income) 10 EUR is received in this EUR bank account, how does this work?
Should the `Interest Income` account be in USD? In that case, when I receive an interest which is in EUR, I use some arbitrary exchange rate of that day such as 1 EUR = 1.3 USD and show the profit as 13 USD?
Or, do I create a new Income account with currency EUR and show the profit as 10 EUR?
I run a startup software company. We have been developing a propreitory software application since an year and have no income yet. We will be earning license revenues from sale of the software after an year.
For submitting the accounts, our accountant suggested that we show the entire development costs as an asset. What are the benefits of showing it as an asset and showing it an expense? This issue is more understandable with things like computers purchased (the useful life of computers is longer than the financial period, and so they should be treated as assets to spread the expense over several years). But with the product development, it was news to me that the same thing could/should be done.
Wanted to hear some more opinions as I am not an accounting person, can someone shed some light on the advantages of treating software development charges as expense and as an asset.
Thanks Mike for the reply.
Actually the logic of taking up a higher amount of shares was that we are likely to approach unsophisticated angels for fund raising initially - so this might demonstrate more personal risk taken and money put in.
I am now considering showing the amounts received as money for application of shares, which can be refunded or shares be issued at a later time. Is this possible, or is it same as a loan?
At the time of incorporation of my company, there were 1,000 authorized shares of which I paid for $100 for 100 shares. There are no other shareholders. Over the last year I have put in $50k of my own money into my company. We are working on a software application and everything put in gets spent on development. We will be looking to raise funds after an year.
Regarding the accounting of the $50,000, my accountant is suggesting I purchase shares worth $25,000 and show the remaining $25,000 as a loan from me to the company. Is there any logic to this? (Basically, why not issue shares for the entire amount to me?)
Robert, thanks for the answer. We do things more or less the same way in the UK :)
The valuation part is clear... lets assume the investor is convinced that the company is valued at 500k.
The math is where I am getting confused - do we need to do anything before taking the money from the investor? And how do we ensure in terms of shareholding that the investor owns 10%? Is my math above correct (issue him enough shares so that he owns 10% of the total shares)?