Question

Question 4 Accounting for Foreign Currency Transactions                   

Coastal Surf Ltd is a manufacturer of surfboards in Australia. The company sells surfboards to a Japanese company.

The company received an order from the Japanese company to buy 20 surfboards for a value of ¥9,600,000 Japanese Yen. Under the conditions of the contract, surfboards were sold FOB Sydney and were shipped to Osaka on 20 April 2020. The payment for these surfboards was agreed to be paid by three equal instalments on 30 April, 31 May and 30 June. The company’s financial year ends on 30 June 2020.

The following exchange rates were applicable:

20 April                        A$1.00 = JPY¥990

30 April                        A$1.00 = JPY¥998

31 May                        A$1.00 = JPY¥1005

30 June                       A$1.00 = JPY¥1100

Required:

Prepare relevant journal entries to record the above transactions in accordance with AASB 139. (Narrations are required)

Answer 1

As per the question, the company Coastal Surf Ltd is a manufacturer of surfboards in Australia. The company sells surfboards to a Japanese company on FOB basis for YEN 9,600,000 payable in 3 equal amounts.

As per the standard, the initial revenue in foreign exchange is recorded based on the exchange rate on the date of transaction. When the amount is received the difference between the rate on initial recognition and as on the date of receipt of money is considered as foreign exchange gain or loss.

In this question the rates on YEN as against AUD has increased and hence we will have Forex loss. The journal entires are-

Date	Particulars	Workings	Debit (AUD)	Credit (AUD)
April 20 2020	Trade payables	9600000 / 990	9,697
	Revenue			9,697
April 30 2020	Bank	3200000 / 998	3,206
	Forex loss		26
	Trade Payables			3,232
May 31 2020	Bank	3200000 / 1005	3,184
	Forex loss		48
	Trade Payables			3,232
June 30 2020	Bank	3200000 / 1100	2,909
	Forex loss
	Trade Payables			3,232