Question

On 10 July 2019, La Arabia Ltd an Australian based company provides some management consulting service...

On 10 July 2019, La Arabia Ltd an Australian based company provides some management consulting service to a company in Unites States of America called XYZ Incorporation for an agreed fee of US$1 million. The amount is paid into the US bank account of La Arabia Ltd on 10 July 2019. La Arabia Ltd elects to leave the amount in the US bank account, which pays interest each year on 30 June at a rate of 10 per cent. The relevant exchange rates are: 10 July 2019 A$1.00 = US$0.78 30 June 2020 A$1.00 = US$0.75 Page 5 of 10 Required: Provide the journal entries that would need to be made in the books of La Arabia Ltd to account for the above transaction for the year ending 30 June 2020.

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Answer #1

Journal entries in the books of La Arabia Ltd

Date. Particulars Amt$. Amt$

10.07.2019. La Arabia Ltd a/c.... Dr. $1M

To XYZ Inc a/c. $ 1M

(Being consulting services is provided by

La Arabia Ltd to XYZ Inc)

10.07.2019. US Bank a/c of La Arabia

a/c Dr. $ 1M

To XYZ Inc a/c. $1M

(Being amount is credited to US bank a/c of La Arabia ltd)

31.07.2019. La Arabia Ltd a/c.... Dr. $ 1M

To interest a/c.. Dr. $. 0.858

To XYZ inc a/c...... $1.858M

(Being interest is credited in the books of La Arabia Ltd @10%)

30.06.2020. La Arabia Ltd a/c.. Dr. $1M

Interest a/c.. Dr.. $0.825

To XYZ a/c.................$1.825M

(Being interest is credited in the books of

La Arabia Ltd @ 10% )   

​

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