Question 5 (10 marks)

On 3 June 2019 Canberra Ltd an Australian based company acquired goods on credit from a supplier in the USA. The goods are shipped free on board (FOB) from Chicago on 3 June 2019. The cost of the goods is USD 500,000 and the debt remains unpaid as at 30 June 2019.

On 3 June 2019, the exchange rate is A$1.00 = USD 0.75.

On 30 June 2019 the exchange rate is A$1.00 = USD 0.95.

Hence, the value of the Australian dollar has increased relative to the US Dollar. Canberra Ltds reporting date is 30 June.

Required

1. Provide the accounting entries necessary to account for the purchase transaction, noted above, for the year ending 30 June 2019. (8 marks)
2. When initially recognising a transaction that is denominated in a foreign currency, what exchange rate should be used to translate the transaction to Australian Dollars? (2 marks)