Yandos Limited has made a loan of A$50 000 to a foreign subsidiary in Japan, Yamuchi Limited. The loan was made when the exchange rate was A$4 = Y1. By reporting date, the exchange rate had changed to A$5 = Y1. The Australian parent will need to recognise the following as part of the entry to revalue the loan:

Question

Quizplus · Accepted Answer

The loan was initially made at an exchange rate of A$4 = Y1, which means the loan in Yen was Y12,500 (A$50,000 / A$4). By the reporting date, the exchange rate had changed to A$5 = Y1, which means the value of the loan in Australian dollars is now A$62,500 (Y12,500 * A$5). The increase in the value of the loan receivable due to the exchange rate change is A$12,500 (A$62,500 - A$50,000), which is why the correct entry is to debit (increase) the loan receivable by A$12,500.

Yandos Limited Has Made a Loan of A$50 000 to a Foreign