On June 30, Year 7, Apple Company, which prepares monthly financial statements,
ID: 2533613 • Letter: O
Question
On June 30, Year 7, Apple Company, which prepares monthly financial statements, acquired from Bee Company for 500,000 yen a machine with life of 5 yrs and no residual value. To pay Bee Company, Apple Company borrowed 500,000 yen from Soy Bank (in China) on a 12%, 60 day note. Apple Company acquired a 510,000 yen draft to York Bank (in the U.S.) on August 29, Year 7 to pay the maturity value of the note to Soy Bank. Relevant exchange rates for the yen were as follows:
Buying rate Selling Rate
June 30, Yr 7................$0.0081 $0.0084
July 31, Yr 7.................$0.0080 $0.0082
August 29, Yr 7............$0.0082 $0.0085
REQUIRED: Prepare journal entries (including explanations for Apple Company on June 30, July 31 and August 29, Yr 7 including interest accrual and depreciation of the machine. use 30 day months for July and August interest.
Explanation / Answer
The accounting should be as per IAS 21
Depreciation on machine=(Cost-Salvage Value)/5X12 8333 At the time of purchase currency rate should be recorded at $ 0.0081/Y Cost of machinery recorded at Y 500000 X 0.0081 = $ 4050 The accounting should be as per IAS 21 Loan should be initially recognized at same amount Depreciation on machine in $ = 8333 X 0.0081=67.5 Interest accrual for July= $4050 X 12%/12=$40.5 Interest accrual for August= ($4050+$40.5) X 12%/12=$40.9 Interest and repayment on loan as on 31.08.Year7 should be recognized at $0.0082/Y Loan interest and repayment should in $= 510000 X 0.0082=$4182 Foreign exchange loss on loan = $ 4182-$4050-$40.5-$40.9=$50.6 Journal Date Account Title Dr Cr 30.06.YEAR7 Machinery 4050 Bee Company 4050 Being Machinery purchased 30.06.YEAR7 Bee Company 4050 Loan 4050 31.07.YEAR7 Profit & Loss A/c 67.5 Depreciation 67.5 Being depreciation charged on machinery 31.07.YEAR7 Depreciation 67.5 Accumulated Depreciation 67.5 Being depreciation transferred to accumulated depreciation 31.07.YEAR7 Interest 40.5 Loan 40.5 Interest accrued on loan 29.08.Year7 Interest 40.9 Loan 40.9 Interest accrued on loan 29.08.Year7 Loan 4182 Bank 4182 Being loan repaid along with interest 31.08.Year7 Profit & Loss A/c 67.5 Depreciation 67.5 Being depreciation charged on machinery 31.08.Year7 Depreciation 67.5 Accumulated Depreciation 67.5 Being depreciation transferred to accumulated depreciation 31.08.Year7 Foreign Exchange Loss 50.6 Loan 50.6 Exchange loss on loan a/c recognized. 31.08.Year7 Profit & Loss A/c 50.6 Foreign Exchange loss 50.6 Being foreign exchange loss transferred to Profit & Loss a/cRelated Questions
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