Question

On 1 July 2019 Kanga Consultants Ltd completes a contract to provide advice on the installation of a networked computer system to a company in the US. The client pays the fee of US$500 000 into Kanga Consultants' US bank account on that date. The bank pays interest of 8 per cent annually on 30 June. The exchange rate information is:

Date	Exchange rate
1 July 2019	AU$1 = US$0.78
30 June 2020	AU$1 = US$0.62

Prepare the relevant journal entries are required in Kanga Consultants Ltd's books for 1 July 2019 and 30 June 2020 in accordance with AASB 121 (rounded to the nearest whole AU$)?

Answer 1

Date	Particular	Dr -AU$	Cr -AU$
01-07-19	Bank A/c	641,026
	Fees received (500000/0.78)		641,026
	(fees received in US dollar)
30-06-20	Bank A/c	64,516
	Interest on bank		64,516
	(interest recognized)
30-06-20	Bank A/c	165,426
	Unrelaized gain		165,426
	(unrealiazed gain recognized on bank a.c)

Note as per AASB 21 trabsaction at intial recognisation reported in functional currency using spot rate and subsequently monetory items recognised using closing rate.

That's why fees and interest is reported using spot rate and bank account is adjusted against closing rate

WN -1

Date		US	Exchange rate	Amt in AU
		A	B	C=A/B
01-07-19	Fees	500000	0.78	641,026
30-06-20	Interet (500000*8%)	40000	0.62	64,516
30-06-20	total bank balance	540000	0.62	870,968

WN-2

A	Bank balance in AU as per book	641026 + 64516	705,542
B	Bank balance in US at closing rate		870,968
C = B-A	unrealised gain/(loss)		165,426