Two companies enter into loan agreements on 1 March 2003.On that date they also enter into an agreement to swap the loans.The details for each company and loan are:
Exchange rates:
1 March 2003 $A1.00 = £stg0.3012
30 June 2003 $A1.00 = £stg0.2980
The balance date for both companies is 30 June 2003.What are the accounting entries in the books of Boris Ltd on 1 March and 30 June 2003?
A.

B.

C.

D.

E. None of the given answers.

Question

Two companies enter into loan agreements on 1 March 2003.On that date they also enter into an agreement to swap the loans.The details for each company and loan are:
  Exchange rates:
1 March 2003 $A1.00 = £stg0.3012
30 June 2003 $A1.00 = £stg0.2980
The balance date for both companies is 30 June 2003.What are the accounting entries in the books of Boris Ltd on 1 March and 30 June 2003? 
A.
  
B.
  
C.
  
D.
  
E. None of the given answers.

Quizplus · Accepted Answer

On 1 March 2003, the accounting entries in the books of Boris Ltd would be:

Loan receivable (from Alpha Ltd) - Dr
Exchange gain (difference between the loan amount and the fair value at the date of the loan agreement) - Dr
Cash/Bank - Cr (assuming the loan amount is received in cash)

On 30 June 2003, the accounting entries would be:

Loan payable (to Delta Ltd) - Cr
Exchange loss (difference between the loan amount and the fair value at the date of the loan agreement) - Dr
Interest expense (if applicable) - Dr
Cash/Bank - Dr (assuming the loan amount is paid in cash)

Two Companies Enter into Loan Agreements on 1 March 2003