Exam 35: Accounting for Foreign Currency Transactions

The spot rate is defined in AASB 121 as:

On 1 July 2006 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: What journal entries are required in McGrath Ltd's books for 1 July 2006 and 30 June 2007 and 30 June 2008 in accordance with AASB 121 (rounded to the nearest whole $A)?

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 Jarrets Ltd's books (rounded to the nearest whole $A)?

The essential feature of a non-monetary item is the absence of a right to receive (or an obligation to deliver)a fixed or determinable number of units of currency.

Inventory is an example of a monetary item.

The exchange rate for a currency depends on many factors including:

In terms of retrospectively assessing hedge effectiveness,which of the following situations does not meet the criteria for effectiveness?

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:

The functional currency of an entity:

Safety Ltd purchased goods for £20,000 from a British supplier on 1 April 2005.The amount owing on the purchase is payable on 30 July 2005.On 1 May 2005 a forward-exchange contract for the delivery of £20,000 on 30 July 2005 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)?

A foreign currency transaction shall be recorded on initial recognition in the:

Which of the following is not a condition that must be met,according to AASB 139,before a relationship qualifies for hedge accounting?

In selecting the appropriate foreign currency exchange rates to apply in translating foreign currency transactions,the accountant exercises an important element of judgement about whether the rates are overvaluing or undervaluing the reporting currency:

AASB 121 requires foreign currency transactions to be recorded,on initial recognition in the presentation currency,by applying to the foreign currency amount the spot exchange rate between the presentation currency and the foreign currency at the date of the transaction.

On 5 September 2004 Russell Ltd places an order for €500,000 of inventory from a Swedish supplier.The terms for the purchase of the goods are that they are f.o.b.shipping point and they are to be paid for on 5 November.The financial controller of Russell Ltd enters into a forward-exchange contract on 5 September and designates it as a hedge for the purchase.The forward-exchange contract is for €500,000 to be supplied by the bank on 5 November 2004.The goods are shipped on 5 October 2004 and are paid for on 5 November. What are the journal entries to record the above transactions from 5 September through to 5 November in accordance with AASB 121 (rounded to the nearest whole $A)?

The hedge effectiveness criteria prescribed in AASB 139 have made which type of financial instrument much less effective as a potential hedging instrument?

Common examples of qualifying assets are assets that result from development and construction activities in:

An exception to the requirement that foreign currency monetary items should be re-translated at the reporting date is: