Question

Accounting for foreign currency transactions

 

MyBeauty Ltd is an Australian company which specialises in manufacturing and distributing health and beauty products to both local and international clients. The company has a reporting period which ends on 30 June and the Australian dollar is the functional and presentation currency. 

For the financial year ending 30 June 2019, MyBeauty LTd has entered into two independent transactions denominated in foreign currency as follows.

Transaction A

MyBeauty Ltd sells some goods on credit to Bristol Industries, a British company. The contract, dated 1 January 2019, is denominated in United Kingdom pounds and the contract amounts to £150,000. Bristol Industries settles the contract on 29 January 2019. 

The relevant exchange rates are as follows:

3 January 2019

A$1.00 = £0.5684

29 January 2019

A$1.00 = £0.5892

Transaction B

On 1 July 2017, MyBeauty Ltd entered into a loan denominated in Euros, borrowing €300,000 from a European Bank. The following summarises the bank loan statements over the period 1 July 2017 to 30 June 2019.

Date 

Details 

Amount

Balances

€

€

1 July 2017

Loan contract – principal

300,000

300,000 DR

30 June 2018

Interest

33,000

333,000 DR

30 June 2019

Interest

37,000

370,000 DR

The relevant exchange rates are as follows:

1 July 2017

A$1.00 = €0.6545

30 June 2018

A$1.00 = €0.6045

30 June 2019

A$1.00 = €0.6419

Required:

In accordance with AASB 121, prepare all relevant journal entries of MyBeauty Ltd to account for the above transactions for the financial years ending 30 June 2018 and 2019, where relevant.

Answer 1

Journal Entries for Transaction A:

Date	Particulars	Dr.(A$)	Cr.(A$)
3rd Jan, 2019	Bristol Industries A/c (150,000/0.5684)	263,899
	To Sales A/c		263,899
	(Being, sales made to Bristol Industries)
29th Jan, 2019	Bank A/c (150,000/0.5892)	254,582
	Exchange rate gain/loss A/c	9,317
	To Bristol Industries A/c		263,899
	(Being, payment received from Bristol Industries, difference amount accounted to Exchange rate gain/loss )
30th June, 2018	Profit & Loss A/c	9,317
	To Exchange rate gain/loss A/c		9,317
	(Being, exchange rate loss transferred to Profit & Loss A/c)

Journal Entries for Transaction B:

Date	Particulars	Dr.(A$)	Cr.(A$)
1st July, 2017	Bank A/c (300,000/0.6545)	458,365
	To Loan Payable A/c		458,365
	(Being, euro loan taken)
30th June, 2018	Interest A/c (33,000/0.6045)	54,590
	To Loan Payable A/c		54,590
	(Being, Interest due)
30th June, 2019	Interest A/c (37,000/0.6419)	57,641
	To Loan Payable A/c		57,641
	(Being, Interest due)