Exam 35: Accounting for Foreign Currency Transactions

Emu Exports Ltd sold products to a New Zealand company.The sales contract was denominated in $NZ.On 1 October 2005,$NZ500,000 worth of products were sold with the terms f.o.b.shipping point and payment due 30 December 2005.A forward-exchange contract in which the bank agrees to purchase $NZ300,000 from Emu Exports on 30 December 2005 is entered into on 1 November 2005.The forward-exchange rate is $A1 = $NZ1.25.Other exchange rates are as follows: What are the journal entries to record the above transactions from 1 October through to 30 December 2005 in accordance with AASB 121 (rounded to the nearest whole $A)?

Which of the following items is within the scope of AASB 112 "The effects of changes in foreign exchange rates"?

On 1 July 2003 Kanga Consultants Ltd completes a contract to provide advice on the installation of a networked computer system to a company in the US.The client pays the fee of US$500,000 into Kanga Consultants' US bank account on that date.The bank pays interest of 8 per cent annually on 30 June.The exchange rate information is: What journal entries are required in Kanga Consultants Ltd's books for 1 July 2003 and 30 June 2004 in accordance with AASB 1012 (rounded to the nearest whole $A)?

AASB 121 requires foreign currency monetary items that are expected to be settled in the short term to be translated at the spot rate at reporting date,but does not require this treatment for long-term monetary items denominated in foreign currencies:

The three principal types of hedges referred to in AASB 139 are:

For a cash flow hedge relating to the purchase of a particular asset,foreign exchange gains and losses made on the hedging instrument:

It seems pointless to distinguish between different types of hedges,as the accounting treatment is the same for all hedging - i.e.,all changes in fair values of hedging instruments are recognised in profit or loss

On 1 May 2005 Harry's Plastics Ltd acquires goods from a supplier in the US.The goods are shipped f.o.b.from America on 1 May 2005.The cost of the goods is US$1,500,000.The amount has not been paid at period end,30 June 2005.Exchange rates are as follows: 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)?

Issues in relation to foreign currency arise when a reporting entity based in Australia has transactions with an overseas entity and the transaction is denominated in Australian currency:

The following items are in the financial statements of Pirie Ltd as at 30 June 2012. Which of the following combinations identify all items required to be translated at spot rate on 30 June 2012 as prescribed in AASB 112 "The effects of changes in foreign exchange rates"?

AASB 121 defines an exchange rate as a ratio for the exchange of two currencies at a particular time:

AASB 121 requires that the initial recognition of a foreign currency transaction be:

On 1 July 2005 Jarrets Ltd borrows £500,000 from a British bank at an interest rate of 8 per cent,repayable in pounds sterling (£)and with interest due on 30 June each year.The term of the loan is 3 years.On the same date Fitners Ltd borrows $A1 million from an Australian bank at an interest rate of 10 per cent.The term of the loan is 3 years.Jarrets and Fitners decide to swap their interest and principal obligations on 1 July 2005.Exchange rate information is as follows: Both Jarrets and Fitners are Australian companies.What are the journal entries to record the swap for the period ended 30 June 2006 in Fitners Ltd's books (rounded to the nearest whole $A)?

There are two broad categories of foreign currency issues that arise in financial reporting.They are:

The purpose of 'hedge accounting' is to recognise the offsetting effects on profit or loss of changes in the nominal values of the financial instrument and the hedging instrument:

Which of the following statements is correct with respect to AASB 112 "The effects of changes in foreign exchange rates"?

Examples of monetary items that may be denominated in foreign currencies include:

The effect of a fall in the exchange rate for Australian dollars relative to other major world currencies would include:

Apart from some limited exceptions,AASB 121 requires that exchange differences on monetary items shall be:

If the foreign currency exchange rate between Australia and the US was $A1.00 = US$0.55 on 1 October 2004 and moved to be $A1.00 = US$0.60 one month later,the Australian dollar has decreased relative to the foreign currency: