Question

You Beaut Ltd is an Australian company which has a functional currency that is A$. It has reporting periods ending on 31 December and 30 June. On 22 November 2020 You Beaut Ltd sold some inventories to a Chinese customer for the agreed price of 400,000 Yuan. The original purchase cost of the inventories was A$75,000. On 19 January 2021, the customer pays the amount owing on the sales invoice to You Beaut Ltd.

The applicable exchange rates were:

                                    1 July 2020                  1 Yuan = A$0.24

                                    22 November 2020     1 Yuan = A$0.28

                                    31 December 2020     1 Yuan             = A$0.21         

                                    19 January 2021          1 Yuan = A$0.24

                                    30 June 2021               1 Yuan = A$0.22

Required:

In accordance with AASB 121/IAS 21, prepare the necessary journal entries for You Beaut Ltd to account for the above transactions for the half year to 31 December 2020 and the full year to 30 June 2021

Answer 1

Foreign currency- Yuan

functional currency - Australian Dollars

initial recognition- foreign currency transaction shall be recorded, on initial recognition in the functional currency, by applying to the foreign currency amount the spot exchange rate between the functional currency and the foreign currency at the date of the transaction.

Rate on 22/11= A$/Yuan 0.28

400000 Yuan * 0.28= A$ 112000
Dr Receivable 112000

cr Sales 112000

reporting date 31/12

inventoey is a non monetary item hence, no need for translation. We shall leave it at Historical rate.

however, receivable is a monetary transaction and we will translate it at the closing rate on 31/12 being A$ 0.21.

Yuan 400000*0.21= A$ 84000

implying a reduction in receivable by A$ 28000

DR statement of profit and loses account (loss) 28000

CR Receivable 28000

Settlement date 19/01

payment at historical rate Australian Dollars 0.24.

Yuan 400000* 0.24= 96000 Australian Dollar

Dr Bank 96000

CR receivable 84000

CR Statemnt of Profit and loser (gain) 12000

reporting date 30/06 June

receivable will be translated at Australian dollar 0.22

400000*0.22= Australian dollar 88000