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Question 6 On 1 July 2019, Lachie Ltd enters into a loan agreement with SK Bank to borrow USD$5million. Lachie Ltd wishes to use these
Question 6 On 1 July 2019, Lachie Ltd enters into a loan agreement with SK Bank to borrow USD$5million. Lachie Ltd wishes to use these funds to construct new machinery. The interest on the loan is at a fixed rate of 5% per annum. Half-yearly payments in arrears are required, with interest payments due on 31 December and 30 June each year. Lachie Ltd prepares half-yearly reports and its reporting periods are 30 June and 31 December each year. By 31 December 2019, the construction of the machinery is completed. Provided, as follows are the exchange rates at the relevant dates: 1 July 2019 Average July-December 2019 31 December 2019 Average January-June 2020 30 June 2020 A$1.00 = USD$0.75 A$1.00 = USD$0.78 (use to calculate interest costs) A$1.00 = USD$0.76 A$1.00 = USD$0.77 (use to calculate interest costs) A$1.00 = USD$0.80 Required: In accordance with AASB121 The Effects of Changes in Foreign Exchange Rates provide the journal entries for the above transactions: a) For the half-year ending 31 December 2019, while the asset is under construction. (9 marks) Provide your answer here b) For the half-year ending 30 June 2020, when construction has been completed. (5 marks) Provide your answer here (Total=14 marks)
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