QUESTION 2: Accounting for Foreign Currency (12 Marks)

(i)On 17 September 2019 an Australian company acquires goods on credit from a supplier in London. Their goods are shipped from London 17 September 2019.

The cost of the goods is UK 300,000 and the debt remains unpaid at 31 December 2018. On 17 September the exchange rate is A$1.00 = UK0.48.

On the 31 December 2019 it is A$1.00 = UK0.41. Hence the value of the Australian dollar has decreased relative to the UK pound. The Australian companies reporting date is 31 December.

Required:

Provide the accounting entries necessary to account for the above purchase by the Australian company for the year ending 31 December 2019in accordance with the requirement of AASB 121. Show all workings.(6 marks)

[Answer and show workings here]

(ii)A company in Sydney sells merchandise to a company in Auckland, New Zealand, on 10 November. The sales price is NZ $ 230,000 and the exchange rate on this date is A $1=NZ $1.2. Settlement of the invoice is made by the New Zealand company in NZ dollars on 15 December when the rate of exchange is A$1=NZ $1.25

Required:

Give the entries in the books of the Australian company on the date of sale and date of settlement, prepared in accordance with the requirement of AASB 121. Show all workings.(6 marks)