Reference no: EM132787249
An entity, whose functional currency is the RM, purchases machinery from a foreign supplier for SD$8 million on 31 October 2019 when the exchange rate was SD$1.60 : RM1. At the year-end of 31 December 2019, the amount has not been paid. The closing exchange rate was SD$1.25 : RM1.
Problem 1. Which of the following statements are correct?
a) Cost of plant RM6,400,000, no exchange gain, other payable RM6,400,000.
b) Cost of plant RM5,000,000, exchange loss RM1,400,000, other payable RM6,400,000.
c) Cost of plant RM6,400,000, exchange gain RM1,400,000, other payable RM5,000,000.
d) Cost of plant RM5,000,000, no exchange loss, other payable RM5,000,000.
Problem 2. Illustrate journal entry for the above transaction as at 31 December 2019.
a) Debit loss in foreign exchange RM1,400,000; credit other payable RM1,400,000
b) Debit other payable RM1,400,000; credit gain in foreign exchange RM1,400,000
c) Debit other payable RM1,400,000; credit plant RM1,400,000
d) Debit plant RM1,400,000; credit other payable RM1,400,000
Problem 3. Which of the following terms are defined by the statement: "The currency of the primary economic environment in which the entity operates"?
a) Local currency
b) Operational currency
c) Functional currency
d) Presentation currency