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Page Title: Revaluation of Foreign Currency
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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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