Zeppelin Ltd ordered a batch of computers from the USA on 11 November 20X4 for a total price of US$800 000. Zeppelin Ltd’s reporting date is 31 December and its functional currency is A$. The computers were delivered on 23 December 20X4 and payment was made on 15 January 20X5. The risks and benefits of the ownership transfer to the purchaser on delivery. The computers formed part of Zeppelin’s inventory and was still on hand on 31 December 20X4.
$$\begin{array}{l}
\text { The following exchange rates applied: }\
\begin{array} { l l l l }
11 \text { November 20X4 } & \text { US } \$ 1.00 & = \mathrm { A } \$ 1.25 \
23 \text { December 20X4 } & \text { US } \$ 1.00 & = \mathrm { A } \$ 1.30 \
31 \text { December 20X4 } & \text { US } \$ 1.00 & = \mathrm { A } \$ 1.35 \
\text { 15 January 20X5 } & \text { US } \$ 1.00 & = \mathrm { A } \$ 1.20
\end{array}
\end{array}$$
-At what amount would be purchase of the inventory be recognised?
A)$615,385
B)$1,040,000
C)$1,000,000
D)$1,080,000

Question

Zeppelin Ltd ordered a batch of computers from the USA on 11 November 20X4 for a total price of US$800 000. Zeppelin Ltd’s reporting date is 31 December and its functional currency is A$. The computers were delivered on 23 December 20X4 and payment was made on 15 January 20X5. The risks and benefits of the ownership transfer to the purchaser on delivery. The computers formed part of Zeppelin’s inventory and was still on hand on 31 December 20X4.
$$\begin{array}{l}
\text { The following exchange rates applied: }\
\begin{array} { l l l l } 
11 \text { November 20X4 } & \text { US } \$ 1.00 & = \mathrm { A } \$ 1.25 \
23 \text { December 20X4 } & \text { US } \$ 1.00 & = \mathrm { A } \$ 1.30 \
31 \text { December 20X4 } & \text { US } \$ 1.00 & = \mathrm { A } \$ 1.35 \
\text { 15 January 20X5 } & \text { US } \$ 1.00 & = \mathrm { A } \$ 1.20
\end{array}
\end{array}$$
-At what amount would be purchase of the inventory be recognised?
A)$615,385
B)$1,040,000
C)$1,000,000
D)$1,080,000

Quizplus · Accepted Answer

The purchase of the inventory would be recognised at the exchange rate on the date when the risks and benefits of ownership transferred to the purchaser, which is on delivery (23 December 20X4). The exchange rate on that date was US$1.00 = A$1.30. Therefore, the cost of the inventory in A$ would be US$800,000 * 1.30 = A$1,040,000.

Zeppelin Ltd Ordered a Batch of Computers from the USA