During the Year Ended 30 June 2007,Johnson Ltd Became Deeply

Multiple Choice

During the year ended 30 June 2007,Johnson Ltd became deeply involved in trade with Malaysia.On 1 July 20X6,the company acquired 50% of the issued capital of a Malaysian palm oil producer,Plantations Berhad,for $7 000 000.For the year ended 30 June 20X7,the following balance sheet and income statement were prepared by Plantations Berhad (amounts in thousands) : Income Statement for the Year ended 30 June 2007
$\begin{array}{lll}\text {Profit from continuing activities before tax }&\text { MYR5000 }\\\text {Less income tax expense }&2000\\\text {Profit for the year }&\text { MYR3000 }\\\end{array}$
Balance Sheet as at 30 June 2007
$\begin{array}{lll}\text {Sundry assets }&MYR42 000\\\text {Less sundry liabilities }&20,000\\\text {Net assets }&MYR22 000\\\text {Shareholders' equity }&\\\text {Issued capital }&MYR5000\\\text {Retained earnings }&17,000\\\text {Total shareholders' equity }&MYR22 000\\\end{array}$
Statement of the Movement in Retained Earnings in the Year ended 30 June 2007
$\begin{array}{lll}\text {Retained earnings 1 July 2006 }&\text { MYR15 } 000\\\text {Add profit for the year ended 30 June \( 20X 7 \) }&3000\\\text {Less dividends declared }&1000\\\text {Retained earnings 30 June 2007 }&\text { MYR17 } 000\\\end{array}$
The functional currency of Plantations Berhad was Malaysian Ringgit.The following translation statement was prepared for the company (amounts in thousands) :
$\begin{array}{lll}&\text {ringgit}&\text {Factor }&\text { AUD}\\\text {Profit from continuing activities before tax }&MYR5000&1.90&\$2632\\\text {Less income tax expense }&2000&1.90&1053\\\text {Profit for the yea }&3000&&1579\\\text { Add retained earnings 1 July \( 20X6 \) }&15,000&2.00&7500\\\text {Less dividends declared }&1000&1.80&556\\\text {Retained earnings 30 June 2007 }&1700&&8523\\\text {Issued capital }&5000&2.00&2500\\\text {Foreign currency translation reserve }&&&1199\\&\text { MYR22 } 000&&\$12,222\\\text {Sundry assets }&\text { MYR42 } 000&1.80&\$23,333\\\text { Less sundry liabilities}&20,000&1.80&11,111\\\text { Net assets}&\text { MYR22 } 000&&\$12,222\\\end{array}$
Additional information:
A.A deferred tax liability of 30% of the foreign currency translation reserve is to be recognised.
B.On 1 July 20X6,as a partial hedge against its investment in Plantations Berhad,Johnson Ltd took out a three-year loan of MYR8 000 000 from the Bank Negara at 12% interest,with interest payable quarterly commencing 30 September 20X6.
C.On 15 May 20X7 Johnson Ltd placed an order for MYR2 000 000 in merchandise for resale from Malaysian Industries Berhad,payable in USD.The goods were shipped FOB on May 31 with settlement due on 31 July 20X7.
$\text { At relevant dates the exchange rates were: }$
$\begin{array}{lll}1 \text { July } 20X6&\text { AUD1 = MYR2.00 }\\30 \text { September } 20X6&\text { AUD1 = MYR1.95 }\\31 \text { December } 20X 6&\text { AUD1 = MYR1.90 }\\31 \text { March } 20X7&\text { AUD1 = MYR1.90 }\\15 \text { May } 20 X 7&\text { AUD1 }=\text { MYR1 } 1.88=\text { USD } .80\\31 \text { May } 20 X 7&\text { AUD1 }=\text { MYR1.85 = USD } 79\\30 \text { June } 20X7&\text { AUD1 = MYR1.80 = USD.75 }\\\text { Average for the year }&\text { AUD1 }=\text { MYR1 } .90=\text { USD } .78\\\text { 31-July-20X7 }&\text { AUD1 = MYR1.97 = USD } 80\end{array}$
At 30 June 20X7,Johnson Ltd recognised its equity in the dividends declared by Plantations Berhad in its income statement.When the dividend was subsequently received from Plantations Berhad,the exchange rate was AUD1 = MYR1.78.The exchange gain or loss recognised by Johnson Ltd on receiving that dividend was (rounded to the nearest dollar) :

A) a gain of $6242.
B) a loss of $3121.
C) a gain of $3121.
D) none of the above.