Context of accounting for overseas operations

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Reference no: EM13170371

(a) Describe the concepts of functional and presentational currencies in the context of accounting for overseas operations.

(b) Broome Ltd established an overseas subsidiary on 1/7/2011 with FC100 000 capital. Cash of FC100 000 was the only asset on 1/7/2011. In the year ended 30/6/2012, profit ofFC45 000 was made and the statement of financial position showed thefollowing:

Machinery FC100 000

Inventory20 000

Receivables16 000

Cash9 000

Total assets145 000

Capital100 000

Retained earnings 45 000

145 000

On 1/7/2011, the exchange rate was A$1 = 2FC; on 30/6/2012 the rate was A$1 = 2.5FC; the average rate for 2011/2012 was A$1 = 2.25FC. The functional currency is the foreign currency.

Translate the profit of FC45 000 and the statement of financial position into Australian dollars. Explain the nature of the balancing item foreign exchange gain.

Reference no: EM13170371

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