Hi teacher,

This is the solution to a question(I have the solution but I do not know why that is the case), however, I still do not understand, so please answer the question I asked following, instead of the question in the picture, and please give me a detailed explanation, then I'll thumb you up. Thanks

My question:

1. Can you please a detailed journal and the formula to calculate any number for this question?

2. Why should we time the rate instead of divide by it? (as in the solution?)

Question 5 1/1 pts On 1 July 2016 Apron Ltd, an Australian parent entity, acquired all the issued shares in Bake Ltd, an entity incorporated in a foreign country. As part of Apron Ltd's investment in Bake Ltd on 1 July 2016 Apron Ltd lent Bake Ltd a long term interest free loan of FC $200,000. The local currency of Bake Ltd, being FC$, is the same as its functional currency. The presentation currency of Apron Ltd is A$. Exchange rates for the year ended 30 June 2017 are as follows: Date 01-July-2016 Average rate for the year 30-June-2017 FC$ $1.00 $1.00 $1.00 A$ $1.10 $1.15 $1.20 For the purpose of preparing the consolidated financial statements for the Apron Ltd Group for the year ended 30 June 2017, the correct consolidation adjusting journal entry for the exchange rate differences in relation to Apron Ltd's net investment in Bake Ltd is: a). $ $ Dr Foreign exchange gain 10,000 Cr Foreign currency translation reserve 10.000 b) Dr Foreign currency translation reserve 10.000 Cr Foreign exchange gain 10.000 c) $ Dr Foreign currency translation reserve 15,152 Cr Foreign exchange loss 15.152 d) $ $ Dr Foreign exchange gain 20,000 Cr Foreign currency translation reserve 20,000 Well done! o e $ $ Dr Foreign currency translation reserve 20,000 Cr Foreign exchange gain 20.000 See Class 10 Foreign Currency Illustration Intra Group Transaction. 1 July 2016 200,000 x 1.1 = 220,000 30 June 2017 200,000 x 1.2 = 240,000