Suppose Rabbit Group Limited, the New Zealand parent company, had financed the ownership of Rabbitson Limited, the Australian subsidiary by raising a loan in A$. This would create a hedged position with regard to its Australian subsidiary. And also suppose the balance of this loan on the parents Balance sheet was A$200,000 throughout the current financial year and at 30 June 2018. Assuming the Paragraph 39 method of NZ IAS 21 is used to translate the Australian subsidiary, the exchange rates were 0.91 (1NZ$ = $A) on 1 July 2017 and 0.95 on 30 June 2018.

Required:

(a) What gain (or loss) in NZ$ (on the A$ loan), if any, would be recorded by Rabbit Group Limited in its books on 30 June 2018. Why? Show all workings.

(b) What treatment is required for any NZ$ gain or loss on this A$ loan in the consolidated financial statements?