Finance: Floating L$ Land-Use Fees and Accounting in US$

Passed

1 Oct 2005

Details

In our current accounting system the price of land-use fees in US$, U, is transformed to L$, L, using a fixed exchange rate, R.

When we collect payments, the land-use fees in L$, L, are then transformed to different US$, U', via a different, changing exchange rate, R'.

In this case every value is fixed except the variables with a prime, namely the outgoing exchange rate, R', and the resulting US$, U'. Because our fees are in US$, the error in collected fees is:

The fixed Nburg rate, R, was set to be 250 L$/US$ plus 10% or 275 L$/US$. The current rate, R', is 300 L$/US$. Thus our shortfall in moving from U to U' is:


The proposed solution is to recognize that the only constant is the liability set by LL in US$, given by U. To do this we simply have to set the exchange rate in Equation (1), R, equal to the GOM rate plus 10%.

With this our error will be a constant

This amount would automatically float without RA approval each month because the city recognizes that our liabilities in U are unchanging.