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original accepted and certified bid is retained by the DO
to prove the place of purchase in the event that some of
the currency is later sold through commercial channels.
REVALUATION OF FOREIGN
CURRENCY
We mentioned how the rate of exchange of some
foreign currencies is set by official agreement. Any
change in the official or agreed upon rate of exchange
will result in again or loss by revaluation. Revaluation
is a change in the U.S. dollar value of the foreign
currency.
You should understand the revaluation process
because the rates of nearly all major foreign currencies
fluctuate frequently as a result of changing market
conditions. You should also understand the accounting
procedures a DO must use for revaluation of foreign
currency when the rate of exchange is backed by an
official agreement between the United States and the
specific foreign government and when it is not. Let’s
first look at the procedures the DO must use in the case
of an official change in a fixed legal rate of exchange.
OFFICIAL RATES OF EXCHANGE
Upon receiving a notification of a change in
valuation because of an official government action, the
DO should immediately make the change in his or her
account.
If possible, the DO should make the
revaluation of the foreign currency on hand at the
beginning of the business day in which the change in
the prevailing rate occurs.
In revaluating the foreign currency, the DO first
determines the new U.S. dollar value by dividing the
total foreign currency on hand by the new exchange
rate. The DO then compares the dollar value at the old
rate with the dollar value at the new rate and determines
whether a gain or a loss has occurred.
Gains and Losses
Because all foreign currency is carried in the DO’s
account at the U.S. dollar value, the DO must adjust this
account by the value of the gain or loss resulting from
the revaluation. The DO does this by recording the gain
or loss by revaluation as a transaction in the account.
Documentation
The DO must prepare and sign a Certificate of
Revaluation, similar to the one shown in figure 5-2.
This certificate will be attached as a supporting
document to the DD 1131 or SF 1034, which the DO
must also prepare to account for the gain or loss by
revaluation. The DO must record the gain or loss as a
Figure 5-2.—Certificate of Revaluation due to change in prevailing rate.
5-5
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