Question

Koala Ltd provide financial advice to Trump-Biden Inc. for an agreed fee of US$1 million on 10 July 2019. The monies are paid into the USA bank account of Koala Ltd on 10 July 2019. Koala Ltd decide to leave the monies in the USA bank account and will receive interest at a rate of 10% on 30 June each year. The appropriate exchange rates are noted below:

• 10 July 2019: A$1.00 = US$0.78
• 30 June 2020: A$1.00 = US$.75

Provide the journal entries (including narrations) that would need to be made in the books of Koala Ltd to account for the above transactions for the year ended 30 June 2020.

Answer 1

In the books of Koala journal entries
		(Amount in A$)
		Debit	Credit
10th july 2019	US Bank A/c Dr	1,282,051.00
	To Financial services revenue A/c		1,282,051.00
	(Being financial services fee received the conversion rate of 1A$=US$0.78=1000000/0.78=1,282,051)
30th june 2020	Interest receivable a/c Dr	133,333.33
	To Interest a/c		133,333.33
	(Being interest received US$ 1,000,000 @ 10%=100,000 on 30th june 2010. the currency rate on that date is 1 A$= US$ 0.75 therefore, the interest accured to be accounted as 100,000/0.75= 133333.33)
30th june 2010	US Bank A/c Dr	51,282.33
	To Foreign currency transaction gain or loss a/c		51,282.33
	(Being US Bank balance in respect of financial services to be restated for the foreign currency rate change as the exchange rate as at 30th june is 1A$=US$0.75 i.e 1000000/0.75=1333333.33. the difference between initial transaction entry i. 1282051 and 1333333.33 to be added to the bank account and foreign currency transaction gain or loss account. )
Note: For accounting foreign currency transactions a) for Profit and loss account related accounts the accounting to be done taking into account the currency rate on the transaction date and all the assets and liabilities to be accounted on the year end currency exchange rates