Exam 32: Accounting for Foreign Currency Transactions

Emu Exports Ltd sold products to a New Zealand company.The sales contract was denominated in $NZ.On 1 October 2015,$NZ500 000 worth of products were sold with the terms f.o.b.shipping point and payment due 30 December 2015.A forward-exchange contract in which the bank agrees to purchase $NZ300 000 from Emu Exports on 30 December 2015 is entered into on 1 November 2015.The forward-exchange rate is A$1 = $NZ1.25.Other exchange rates are as follows: 1 October 2015 A \1 .00 = \NZ 1.12 1 November 2015 A \1 .00 = \NZ 1.20 30 December 2015 A \1 .00 = \NZ 1.30 What are the journal entries to record the above transactions from 1 October through to 30 December 2015 in accordance with AASB 121 (rounded to the nearest whole A$)?

Describe,with examples,the reasons why organisations would want to swap a loan denominated in one currency for another.

If the foreign currency exchange rate between Australia and the US was A$1.00 = US$0.55 on 1 October 2014 and moved to be A$1.00 = US$0.60 one month later,the Australian dollar has decreased relative to the foreign currency.

On 1 July 2016 McGrath Ltd enters into an arrangement with a Hong Kong bank to borrow $HK1 500 000.The term of the loan is 3 years with interest payable annually in arrears on 30 June at the rate of 7 per cent.The exchange rate information is: 1 July 2016 A \1 = \HK 4.25 30 June 2017 A \1 = \HK 3.50 30 June 2018 A \1 = \HK 4.50 What journal entries are required in McGrath Ltd's books for 1 July 2016 and 30 June 2017 and 30 June 2018 in accordance with AASB 121 (rounded to the nearest whole A$)?

The spot rate is defined in AASB 121 as:

Inventory is an example of a monetary item.

Safety Ltd purchased goods for £20 000 from a British supplier on 1 April 2015.The amount owing on the purchase is payable on 30 July 2015.On 1 May 2015 a forward-exchange contract for the delivery of £20 000 on 30 July 2015 is taken out with Aus Bank.Safety Ltd's reporting date is 30 June.Exchange rates are as follows: What entries are required to report these transactions in accordance with AASB 121 (rounded to the nearest whole A$)?

On 1 May 2015 Harry's Plastics Ltd acquires goods from a supplier in the US.The goods are shipped f.o.b.from the United States on 1 May 2015.The cost of the goods is US$1 500 000.The amount has not been paid at period end,30 June 2015.Exchange rates are as follows: 1 May 2015 A \1 .00 = US \0 .59 30 June 2015 A \1 .00 = US \0 .52 Harry's Plastics Ltd uses a perpetual inventory system. What entries are required at transaction date and reporting date (rounded to the nearest whole A$)?

According to AASB 123 a qualifying asset is one that necessarily takes a substantial period of time to get ready for its intended use or sale.

Explain the terms hedging instrument and hedged item,and how hedge accounting brings these two together.

What is the required treatment for long-term monetary items denominated in a foreign currency according to AASB 121 and what is a concern that has been raised about the treatment?

Discuss the accounting treatment required under AASB 121 The Effects of Changes in Foreign Exchange Rates when a reporting entity has a foreign currency monetary items at the reporting date.

Which of the following statements is correct with respect to AASB 121 The Effects of Changes in Foreign Exchange Rates?

What is a forward rate agreement? Explain,with an example,how such an agreement can be used as a hedging instrument.

AASB 121 requires that foreign currency monetary items outstanding at reporting date must be:

A hedge is defined by AASB 139 as an action taken,whether by entering into a foreign currency contract or otherwise,with the objective of maximising the possible positive effects of movements in exchange rates.

Discuss the situations in which the discontinuation of fair-value hedge accounting is to be done as provided for in AASB 139.

The following items are in the financial statements of Pirie Ltd as at 30 June 2015. I Foreign currency accounts receivable II Foreign currency long-term debt III Machinery measured in foreign currency-at cost IV Inventories measured in foreign currency Which of the following combinations identify all items required to be translated at spot rate on 30 June 2015 as prescribed in AASB 121 The Effects of Changes in Foreign Exchange Rates?