Question

Know Your Product Ltd is an Australian company with a functional currency = A$. The company has entered into a number of transactions denominated in US$ during the year ended 30 June 2017. The closing exchange rate is A$1.00 = US$0.77, determine the translated amount that will be included in financial statements for each of the following balances. 1. Land at cost US$400 000 acquired on 1 February 2017 when the exchange rate is A$1.00 = US$0.67. 2. Land revalued to US$600 000 on 30 June 2017 that had cost US$400 000 on 1 February 2017 when the exchange rate is A$1.00 = US$0.67. 3. Credit sale of US$80 000 on 12 March 2017 when the exchange rate is A$1.00 = US$0.69. Received cash from debtor of US$40 000 on 30 June 2017. 4. Credit purchase of inventory of US$250 000 on 15 June 2017 when the exchange rate is A$1.00 = US$0.62. The creditor remains unpaid at 30 June 2017. 5. A loan payable of US$800 000 arranged on 1 January 2017 when the exchange rate is A$1.00 = US$0.60. On 30 June 2017, the outstanding interest on the loan is US$20 000.

Answer 1

Initial Recognition of transaction: Transaction should be recognised by using the exchange rate as on the date of transaction

Subsequent Recognition: Subsequent recognition occurs when the items so initially recognised as above are required to be reported in the balance sheet at the year ending

For subsequent recognisition in the financials the items shall be divided into monetary items and non monetary items

1.Monetary item: are money held and assets and liabilities to be received or paid in fixed or determinable amounts of money

2.Non monetary items: Assets and liabilities other than monetary items1.

1.Land acquired as on 1 feb 2017	Since it is initially recognisition land should be recognised by the rate as on date of transaction	=$40000*1/0.672 = A$59524
2.Land revalued as on 30 June	Land being an non monetary item to be recorded using the rate as on the date of transaction but as land is revalued it should be recorded using the rate as on the date of such revaluation	=$60000*1/0.77 = A$77922
3.Credit sale on 12 march 2017	In initial recognisition rate as on the date of transaction to be used	=$80000*1/0.69 = A$115942
4. Received cash from debtors	Cash receipt shall be recognised by rate as on the date of transaction balance amount due from debtors being monetary item to be recognised using closing rate	Balance amount due from debtors to be recognised as = $40000*1/0.77 = A$51948
5. Credit purchase of inventory on 15 june 2017	Purchase transaction being initially recognised. To be recognised by the rate as on the date of transaction	= 250000*1/0.62 = A$403226
6. Creditor balance remaining unpaid as on 30 June	Creditor being monetary item to be recognised using the closing rate	= 250000*1/0.77 =A$324675
7. Loan taken on 1 January 2017	It being initial recognisition to be recorded using the rate as on the date of transaction	= 800000*1/0.6 = A$133333
8. Loan outstanding as on balance sheet date 30 June 2017	Loan payable being the monetary item to be recognised using the closing rate	= 800000*1/0.77 = 1038961
9. Outstanding interest as on 30 June 2017	Interest payable being monetary item to be recognised using the closing rate	= 20000*1/0.77 = 25974