ACC567 Financial Accounting 2

Question 3 – Foreign currency transactions

Aussie Ltd is an Australian company for which the Australian dollar is the functional and presentation currency. The company has entered into a number of foreign activities, and these include the following:

(a) Aussie Ltd sold inventory to a customer in Hong Kong for HK$600,000. The order was received on 10 May 2016, with delivery made on 30 May 2016. Under the conditions of the contract, title to the goods passed to the customer on delivery. Payment in respect of these inventories was received on 19 July 2016. The following exchange rates are applicable:

10 May 2016:      A$1.00  = HK$7.30

30 May 2016:      A$1.00  = HK$8.20

30 June 2016:     A$1.00  = HK$8.60

19 July 2016:       A$1.00  = HK$8.50

(b) On 1 January 2016, Aussie Ltd borrowed US$500,000 from US Bank. The exchange rate on that date was A$1.00 = US$0.65. On 30 June 2016, the interest owing to US Bank on the loan is US$3,000. The exchange rate on 30 June 2016 is A$1.00 = US$0.70.

Required:

i) Prepare the journal entries between 10 May 2016 – 19 July 2016 to record the foreign currency transaction entered into by Aussie Ltd for the sale of inventory to the customer in Hong Kong.

ii) Prepare the journal entries to record and account for the loan from US Bank for the period 1 January 2016 – 30 June 2016. Show all workings.

 

Notes:

  1. Show all necessary workings.
  2. Round all figures to nearest dollar.

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