The Net Assets of a Foreign Operation at 30 June

question 32

Multiple Choice

The net assets of a foreign operation at 30 June 2015 are constituted as assets of US$400 000 and liabilities of US$250 000.The parent entity purchased the foreign subsidiary on 1 July 2012.Exchange rate information is as follows: $$\begin{array} { | l | l | } \hline 1 \text { July } 2012 & \text { US\$1.00 = A\$1.6949 } \\\hline 1 \text { July } 2014 & \text { US\$1.00 = A\$1.7857 } \\\hline 30 \text { June } 2015 & \text { US\$1.00 = A\$1.9231 } \\\hline\end{array}$$ The foreign operation has not traded during the year ended 30 June 2015,so the net assets remained unchanged during the period.What is the parent entity's foreign currency exposure for the year ended 30 June 2015?

• A) foreign exchange gain A$197 185
• B) foreign exchange gain A$20 610
• C) foreign exchange gain A$342 310
• D) foreign exchange loss A$6002
• This means the opening currency is 1.7857; closing currency is 1.9231 = movement of US$ 0.1374. Therefore the net assets of US$150,000 (400-200) x 0.1374 = $20,610. This is a gain as the US$ has strengthened against the A$.

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Definitions:

Physical Units

A method of measuring production or inventory in terms of actual physical items or quantities.

Ending Inventory

The value of goods available for sale at the end of an accounting period, calculated as the beginning inventory plus purchases minus cost of goods sold.

Ending Work in Process

Refers to the items still in production and not yet ready for sale at the end of an accounting period.

Total Units

The entire quantity produced, held in inventory, or sold by a business in a specified period.