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Our company has a foreign loan of USD4,000,000 at the end of reporting period. Its equivalent in functional currency that reported in our ledger before year end adjustment was birr 128,000,000. At the year end exchange rate increased to 35. Then as a monetary item loan payable became 4,000,000 X 35 = 140,000,000

we pass the following year end adjustment

Debit Loss on foreign exchange 12,000,000
Credit Loan payable 12,000,000

Now at year end our loan balance became 140,000,000 (128,000,000 + 12,000,000)

My question is when I prepare cash flow in which section of cash flow can I put the increase in loan payable due to exchange loss and why (So far we use financing section for loan received and paid during the year but this specific case is effect of exchange rate on loan payable)


Thank you for time

I think it just sits in operating profit, the fx loss, but then creditors increases (working capital: movement in creditors) - with both sides sitting in there the movement is subsumed into cash flow from operating activities

profit or loss: (12)
adjustment for finance costs: 12
impact on net cash from operating activities: 0