QUESTION 5 (20 Marks)

Newton Ltd, a company operating in Australia, whose financial year ends on 30 June, enters into the following transactions:

(A). The company placed an order with Hung Ltd a company in Hong Kong for inventory valued at HK$300 000 on 22 April 2016, with delivery due by 30 April 2016. Under the conditions of the contract the title to the goods passes to Newton Ltd on delivery. The inventory was delivered to Newton Ltd on 30 April 2016. Payment in respect of these inventories is due as follows – HK $ 150 000 on 31 May 2016 and the HK $150 000 on 31 July 2016.

(B).Newton Ltd enters into a long-term construction contract with a Japanese company Sushi Ltd to manufacture an item of machinery for use in the business. Sushi Ltd entered into the agreement on 30 April 2015 for a fixed price of Japanese Yen (JY) 4,000,000 (4 million). The equipment is delivered on 31 May 2016 subject to a one-month credit period after the date of delivery. Payment therefore falls on 30 June 2016.

The relevant exchange rates are as follows:

Hong Kong dollar and the Australian dollar:

Date Hong Kong $ Australian $

(HK $) (A $)

22 April 2016 HK $ 8.20 A$ 1.00

30 April 2016 HK $ 8.40 A$ 1.00

31 May 2016 HK $ 8.32 A$ 1.00

30 June 2016 HK $ 8.65 A$ 1.00

31 July 2016 HK $ 8.88 A$ 1.00

Japanese Yen and the Australian dollar:

Date Japanese Yen Australian $

(JY) (A $)

30 April 2015 JY 175 A$ 1.00

30 June 2015 JY 190 A$ 1.00

31 May 2016 JY 180 A$ 1.00

30 June 2016 JY 220A$ 1.00

REQUIRED:

Prepare the necessary journal entries to record all the transactions noted above, (up to and including 31 December 2016 only).