Question

On 1 March 2020 Holmes Ltd enters into a binding agreement with a New Zealand company, which requires the New Zealand Company to construct an item of machinery for Holmes Ltd. The cost of the machinery is NZ$750,000. The machinery is completed on 1 June 2021 and shipped FOB Auckland on that date. The debt is unpaid at 30 June 2020, which is also Holmes Ltd’s reporting date. The exchange rates at the relevant dates are: 1 March 2020 A$1.00 = NZ$1.20 1 June 2020 A$1.00 = NZ$1.30 30 June 2020 A$1.00 = NZ$1.25

Required:

a) Determine the amount in AUD, as at:

• 1 March 2020; and

• 30 June 2020.

b) Prepare the journal entries for the above dates, up to 1 June 2021,showing the amount of exchange gain or loss

correct answer please

Answer 1

ANSWER

a.)	Amount of AUD as at 1 March 2020	$ 625,000	=750000/1.2
	Amount of AUD as at 30 June 2020	$ 600,000	=750000/1.25

b.)	Date	Account Titles	Debit A $	Credit A $
	1 March .2020	Machinery	625,000
		Accounts Payable		625,000
	30 June. 2020	Accounts Payable	25,000
		Foreign Exchange gain or loss		25,000
		(625,0000 - 600,000 )

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