Ramikin Co is a fully owned subsidiary of Bobbin Ltd, an Australian company. Bobbin Ltd purchased all the issued capital of Ramikin Ltd on 1 July 2004. Ramikin Ltd is based in Canada. The following information is summarised from the foreign currency accounts of Ramikin Ltd for the period ended 30 June 2005.

Additional information:
All revenues and expenses were earned or incurred evenly throughout the year.
Inventory was purchased evenly over the period, with the inventory on hand at the end of the period purchased over the quarter ending on 30 June and trade creditors were accrued evenly over the period.
Exchange rate information:

Based on the information provided. What is the gain (loss) on foreign currency translation for Ramikin Ltd for the period?
A) Gain $A385
B) Loss $A28
C) Loss $A612
D) Gain $A376
E) None of the given answers.

Question

Ramikin Co is a fully owned subsidiary of Bobbin Ltd, an Australian company. Bobbin Ltd purchased all the issued capital of Ramikin Ltd on 1 July 2004. Ramikin Ltd is based in Canada. The following information is summarised from the foreign currency accounts of Ramikin Ltd for the period ended 30 June 2005.

Additional information:
All revenues and expenses were earned or incurred evenly throughout the year.
Inventory was purchased evenly over the period, with the inventory on hand at the end of the period purchased over the quarter ending on 30 June and trade creditors were accrued evenly over the period.
Exchange rate information:

Based on the information provided. What is the gain (loss) on foreign currency translation for Ramikin Ltd for the period?
A) Gain $A385 
B) Loss $A28 
C) Loss $A612 
D) Gain $A376 
E) None of the given answers.

Quizplus · Accepted Answer

To calculate the gain or loss on foreign currency translation, we need to first convert the financial statements from CAD to AUD using the average exchange rate for the year. 
Total assets at 30 June 2005: CAD 1,500,000 × 0.9181 = AUD 1,377,150 
Total liabilities at 30 June 2005: CAD 900,000 × 0.9181 = AUD 826,290 
Equity at 1 July 2004: CAD 500,000 × 0.8524 = AUD 426,200 
Equity at 30 June 2005: (CAD 1,500,000 – CAD 900,000 + CAD 350,000) × 0.9181 = AUD 900,766 
Translation gain/loss = Ending equity – Beginning equity – Additional investments + Dividends 
Translation loss = AUD 900,766 – AUD 426,200 – 0 + 0 = AUD 474,566 converted to a loss of approximately $612 based on the given exchange rate of AUD/CAD 0.7737.

Ramikin Co Is a Fully Owned Subsidiary of Bobbin Ltd