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


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


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)



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


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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