Fujitsu Ltd purchases inventor
|
Fujitsu Ltd purchases inventory from DFO Ltd, a listed Britishcompany. Relevant events and the spot rates at each date are shownas follows: Date |
Event |
Spot rate |
|
15 March 2019 |
Order £300,000 of inventory |
A$1.00 = £0.37 |
|
11 May 2019 |
Purchase takes place as inventory shipped to Fujitsu Ltd(FOB) |
A$1.00 = £0.41 |
|
30 June 2019 |
End of financial year |
A$1.00 = £0.43 |
|
02 July 2019 |
Inventory arrives at warehouse |
A$1.00 = £0.42 |
|
14 August 2019 |
Payment of £300,000 to supplier |
A$1.00 = £0.39 |
Required:
a) Prepare appropriate journal entries for each relevant event.(Round amounts to the nearest dollar).Show your working.
b) What is a qualifying asset? Provide two (2) examples. (3marks, maximum 300 words)
Answer:
a)
Journal entries
| Date | Particulars | Debit | Credit |
| 15 March 2019 | No entry | ||
| 11 May 2019 | Purchases a/c | $731,707.32 | |
| To DFO Ltd a/c | $731,707.32 | ||
| 30 June 2019 | DFO Ltd a/c | $34,032.90 | |
| To Foreign exchange gain/loss a/c | $34,032.9 | ||
| (Year end exchange gain accounted) | |||
| 14 Aug 2019 | Foreign exchange gain/loss a/c | $71,556.35 | |
| To DFO Ltd a/c | $71,556.35 | ||
| (Foreign exchange loss accounted) | |||
| 14 Aug 2019 | DFO Ltd a/c | $769,230.77 | |
| To Cash a/c | $769,230.77 | ||
For recording year end exchange loss or gain
= (300,000 x 1/0.41) – (300,000 x 1/0.43)
= $34,032.9
Exchange loss or gain on payment
= (300,000 x 1/0.43) – (300,000 x 1/0.39)
= $71,556.35
b)
Qualifying asset refers to an asset that takes significant timeto get ready for its projected use or sale.It takes substantialperiod to build them.
Any borrowing costs incurred during this period are capitalisedto the qualifying asset.
E.g. Building under construction, Intangible assets underdevelopment, inventories that take substantial time to bring themto saleable condition.
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