The net assets of a foreign operation at 30 June 2015 are constituted as assets of US$400 000 and liabilities of US$250 000.The parent entity purchased the foreign subsidiary on 1 July 2012.Exchange rate information is as follows: $$\begin{array} { | l | l | }
\hline 1 \text { July } 2012 & \text { US\$1.00 = A\$1.6949 } \
\hline 1 \text { July } 2014 & \text { US\$1.00 = A\$1.7857 } \
\hline 30 \text { June } 2015 & \text { US\$1.00 = A\$1.9231 } \
\hline
\end{array}$$ The foreign operation has not traded during the year ended 30 June 2015,so the net assets remained unchanged during the period.What is the parent entity's foreign currency exposure for the year ended 30 June 2015?
A) foreign exchange gain A$197 185
B) foreign exchange gain A$20 610
C) foreign exchange gain A$342 310
D) foreign exchange loss A$6002
This means the opening currency is 1.7857; closing currency is 1.9231 = movement of US$ 0.1374. Therefore the net assets of US$150,000 (400-200) x 0.1374 = $20,610. This is a gain as the US$ has strengthened against the A$.

Question

The net assets of a foreign operation at 30 June 2015 are constituted as assets of US$400 000 and liabilities of US$250 000.The parent entity purchased the foreign subsidiary on 1 July 2012.Exchange rate information is as follows: $$\begin{array} { | l | l | } 
\hline 1 \text { July } 2012 & \text { US\$1.00 = A\$1.6949 } \
\hline 1 \text { July } 2014 & \text { US\$1.00 = A\$1.7857 } \
\hline 30 \text { June } 2015 & \text { US\$1.00 = A\$1.9231 } \
\hline
\end{array}$$ The foreign operation has not traded during the year ended 30 June 2015,so the net assets remained unchanged during the period.What is the parent entity's foreign currency exposure for the year ended 30 June 2015?
A) foreign exchange gain A$197 185
B) foreign exchange gain A$20 610
C) foreign exchange gain A$342 310
D) foreign exchange loss A$6002
This means the opening currency is 1.7857; closing currency is 1.9231 = movement of US$ 0.1374. Therefore the net assets of US$150,000 (400-200) x 0.1374 = $20,610. This is a gain as the US$ has strengthened against the A$.

Quizplus · Accepted Answer

The net assets are calculated as the difference between assets and liabilities, which is US$150,000 (US$400,000 - US$250,000). The exchange rate movement from 1 July 2014 to 30 June 2015 is from A$1.7857 to A$1.9231. The appreciation of the US dollar against the Australian dollar results in a foreign exchange gain when recalculating the value of the net assets in Australian dollars. The gain is calculated as the net assets in US dollars multiplied by the change in exchange rate, which equals A$20,610.

The Net Assets of a Foreign Operation at 30 June