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

Cost Of Inventory Sold - A$ 75000

Date of Sale - 22/11/2020

Export Sale Value   - 400000Yuan(In foreign currency)

Spot Exchange Rate i.e, Exchange rate on date of sale(22/11/2020) - A$0.28/Yuan

Sale Value in A$ at spot exchange rate - 400000Yuan*0.28A$ - A$112000

Half Year end    - 31/12/2020

Exchange rate as on 31/12/2020 i.e. Closing Rate - A$0.21/Yuan

Value of Accounts Receivable at Closing Rate       - 400000*0.21- A$84000

Date of Payment        - 19/1/2021

Exchange Rate on Payment Date - A$0.24/Yuan

Value of Accounts Receivable on Date of Payment - 400000*0.24- A$96000

As per AASB121/IAS21 Foreign Currency Transactions should be intially recognised at spot exchange rate.

Any subsequent changes in foreign excahnge rates of monetary items should charged to profit and loss a/c.

Monetary items should revalued at closing date and account for any gain / loss accordingly.

JOURNAL ENTRIES IN THE BOOKS OF BEAUT LTD. AS PER AASB121/IAS21

DATE	PARTICULARS	DEBIT(A$)	CREDIT(A$)
22/11/2020	Accounts Receivable a/c Dr To Sales a/c	112000	112000
	Being Export Sales of 400000Yuan converted and recorded at spot exchange rate(400000*0.28)
22/11/2020	Sales a/c Dr To Inventory a/c To Profit & Loss a/c	112000	75000 37000
	Being Gross Profit on Export Sales recorded
31/12/2020	Foreign Exchange Fluctuation a/c(Loss) Dr To Accounts Receivable a/c	28000	28000
	Being loss arising from revaluation of Accounts receivable on closing date at closing exchange rate accounted(400000*(0.21-0.28))
19/1/2021	Accounts Receivable a/c Dr To Foreign Exchange Fluctuation a/c(Gain)	12000	12000
	Being Gain on revaluation of Accounts Receivable as on date of payment accounted (400000*(0.24-0.21))
19/1/2021	Cash/Bank a/c Dr To Accounts Receivable a/c	96000	96000
	Being Payment received(400000Yuan*0.24)
30/6/2021	Profit & Loss a/c Dr To Foreign Exchange Fluctuation a/c	16000	16000
	Being net loss of foreign exchange fluctuation account transferred to profit & loss a/c at end of year