Question

A BC Ltd, an Australian company, purchases 240 000 GBP of inventory from DEF company, a listed British company. The inventory was shipped FOB shipping on 11 May 2016, and delivered on 30 May 2016. Payment was made on 30 July 2016.

Required:
Record the journal entries for the relevant transactions if the exchange rates are as follows
(rounded to the nearest whole AUD, narrations are not
11 May 2016 1 AUD=0.58 GBP
30 May 2016 1 AUD=0.60 GBP
30 June 2016 1 AUD=0.56 GBP
30 July 2016 1 AUD= 0.53 GB P

Answer 1

On the date of InvoIce
11-May-16
Inventory (GBP240000*1/0.58)	AUD 4,13,793
Accounts payable		AUD 4,13,793
On the payment date
30-Jul-16
Accounts payable	AUD 4,13,793
Foreign currency transaction loss (452830-413793)	AUD 39,037
Cash (GBP240000*1/0.53)		AUD 4,52,830

In the case of monthly reporting, the following entries will flow

On the date of Invocie
11-May-16
Inventory (GBP240000*1/0.58)	AUD   4,13,793
Accounts payable		AUD   4,13,793
30-May-16
Accounts payable (413793-400000)	AUD       13,793
Foreign currency transaction gain (413793-400000)		AUD       13,793
(240000*1/0.60 = 400000)
30-Jun-16
Foreign currency transaction loss (428751-400000)	AUD       28,751
Accounts payable (428751-400000)		AUD       28,751
(240000*1/0.56 = 428571)
On the payment date
30-Jul-16
Accounts payable	AUD   4,28,751
Foreign currency transaction loss (452830-428751)	AUD       24,079
Cash (GBP240000*1/0.53)		AUD   4,52,830

Net loss in Foreign transaction loss (-13793+28751+24079) = AUD 39,037