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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