Tea Ltd purchased merchandises on credit for resale purpose amounting to Euro10,000 on 1 November 2019, in which 40% of these merchandises were sold before the year-end. There were no other purchases of merchandises during 2019. The half of the amount of debt was settled on 20 December 2019 and the balance was paid on 15 January 2020.

On 31 December 2019, the estimated net realizable value of the ending inventories was at Euro 5,000.

The financial year-end of the company is 31 December. Spot rate

1 November 2019 20 December 2019 31 December 2019 15 January 2020

Euro 1 = HK$8.5 Euro 1 = HK$9.0 Euro 1 = HK$8.4 Euro 1 = HK$8.8

HK dollar is the functional currency for Tea Ltd.

Required: Prepare ALL journal entries for the years 2019 and 2020 relating to

• - The purchase of merchandises (no need to record the sales of merchandise)

• - Settlement of debt

• - Exchange difference, and relevant adjusting entry for inventory (if any).

  Part B

  Max Group is a chain restaurant in Hong Kong. The company wants to obtain capital from investors in Mainland China. The company needs to prepare its financial reports in RMB to show to the prospective investors in Mainland China.

  Required:

  Briefly explain the procedures Max needs to follow to translate its financial statements from Hong

Kong dollar to Chinese RMB.