Question

Question 3 - Week 10 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 30 June 2020 A$1.00 = NZ$1.30 1 June 2021 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 .

Answer 1

a)

Amount of AUD as at 1 March 2020   (750000/1.2)    $ 625,000

Amount of AUD as at 30 June 2020    (750000/1.25) $ 600,000

b)

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

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