The following data relate to Questions 18-22:
During the year ended June 30 20X7, Johnson Ltd became deeply involved in trade with Malaysia. On July 1 20X6, the company acquired 50% of the share capital of a Malaysian palm oil producer, Plantations Berhad, for $7,000,000. For the year ended June 30 20X7, the following balance sheet and income statement were prepared by Plantations Berhad (amounts in thousands):
Income Statement for the Year ended June 30 20X7
Balance Sheet as at June 30 20X7
Statement of the Movement in Retained Earnings in the Year ended June 30 20X7
The functional currency of Plantations Berhad was Malaysian Ringgit. The following translation statement was prepared for the company (amounts in thousands):
Additional information:
a) A deferred tax liability of 30% of the foreign currency translation reserve is to be recognised.
b) On July 1 20X6, as a partial hedge against its investment in Plantations Berhad, Johnson Ltd took out a three (3) year loan of R 8,000,000 from the Bank Negara at 12% interest, with interest payable quarterly commencing September 30 20X6.
c) On May 15 20X7 Johnson Ltd placed an order for R 2,000,000 in merchandise for resale from Malaysian Industries Berhad, payable in USD. The goods were shipped FOB on May 31 with settlement due on July 31 20X7.
At relevant dates the exchange rates were:

-The presentation currency and functional currency of Johnson Ltd was:
A) Malaysian ringgit and Australian dollars respectively.
B) Australian dollars and Australian dollars respectively.
C) Australian dollars and Malaysian ringgit respectively.
D) Malaysian ringgit and Malaysian ringgit respectively.

Question

The following data relate to Questions 18-22:
During the year ended June 30 20X7, Johnson Ltd became deeply involved in trade with Malaysia. On July 1 20X6, the company acquired 50% of the share capital of a Malaysian palm oil producer, Plantations Berhad, for $7,000,000. For the year ended June 30 20X7, the following balance sheet and income statement were prepared by Plantations Berhad (amounts in thousands):
Income Statement for the Year ended June 30 20X7
  Balance Sheet as at June 30 20X7
  Statement of the Movement in Retained Earnings in the Year ended June 30 20X7
  The functional currency of Plantations Berhad was Malaysian Ringgit. The following translation statement was prepared for the company (amounts in thousands):
  Additional information:
a) A deferred tax liability of 30% of the foreign currency translation reserve is to be recognised.
b) On July 1 20X6, as a partial hedge against its investment in Plantations Berhad, Johnson Ltd took out a three (3) year loan of R 8,000,000 from the Bank Negara at 12% interest, with interest payable quarterly commencing September 30 20X6.
c) On May 15 20X7 Johnson Ltd placed an order for R 2,000,000 in merchandise for resale from Malaysian Industries Berhad, payable in USD. The goods were shipped FOB on May 31 with settlement due on July 31 20X7.
At relevant dates the exchange rates were:
 
-The presentation currency and functional currency of Johnson Ltd was:
A) Malaysian ringgit and Australian dollars respectively. 
B) Australian dollars and Australian dollars respectively. 
C) Australian dollars and Malaysian ringgit respectively. 
D) Malaysian ringgit and Malaysian ringgit respectively.

Quizplus · Accepted Answer

The functional currency is the currency of the primary economic environment in which the entity operates. In this case, Johnson Ltd operates in Australia, so the functional currency is Australian dollars. The presentation currency is the currency in which the financial statements are presented. In this case, the financial statements are presented in Australian dollars, so the presentation currency is also Australian dollars.

The Following Data Relate to Questions 18-22