The Following Data Relate to Questions 18-22

question 19

Multiple Choice

The following data relate to Questions 18-22:
During the year ended June 30 20X7, Johnson Ltd became deeply involved in trade with Malaysia. On July 1 20X6, the company acquired 50% of the share capital of a Malaysian palm oil producer, Plantations Berhad, for $7,000,000. For the year ended June 30 20X7, the following balance sheet and income statement were prepared by Plantations Berhad (amounts in thousands) :
Income Statement for the Year ended June 30 20X7
Balance Sheet as at June 30 20X7
Statement of the Movement in Retained Earnings in the Year ended June 30 20X7
The functional currency of Plantations Berhad was Malaysian Ringgit. The following translation statement was prepared for the company (amounts in thousands) :
Additional information:
a) A deferred tax liability of 30% of the foreign currency translation reserve is to be recognised.
b) On July 1 20X6, as a partial hedge against its investment in Plantations Berhad, Johnson Ltd took out a three (3) year loan of R 8,000,000 from the Bank Negara at 12% interest, with interest payable quarterly commencing September 30 20X6.
c) On May 15 20X7 Johnson Ltd placed an order for R 2,000,000 in merchandise for resale from Malaysian Industries Berhad, payable in USD. The goods were shipped FOB on May 31 with settlement due on July 31 20X7.
At relevant dates the exchange rates were:

-The transaction involving the purchase of the merchandise inventory from Malaysian Industries Berhad is:

• A) A foreign currency transaction from the viewpoints of both Johnson Ltd and Malaysian Industries Berhad.
• B) A foreign currency transaction from the viewpoint of Johnson Ltd, but not a foreign currency transaction from the viewpoint of Malaysian Industries Berhad.
• C) Not a foreign currency transaction from the viewpoint of Johnson Ltd, but a foreign currency transaction from the viewpoint of Malaysian Industries Berhad.
• D) Not a foreign currency transaction from the viewpoints of both Johnson Ltd and Malaysian Industries Berhad.

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Definitions:

Ending Inventory

The total value of all products, goods, and materials in stock at the end of an accounting period.

Interim Financial Statements

Financial reports covering a period of less than a full fiscal year, often quarterly.

Full Disclosure

A principle requiring that all material facts and information related to financial transactions be disclosed in financial statements.

Conservatism Principle

An accounting principle that advises reporting expenses and liabilities as soon as possible, but revenue only when it is ensured.