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ACCT6007 Financial Accounting Theory And Practice

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1.Exports Ltd sells goods to a company based in the United States on 1 April 2017. The invoice is denominated in the US dollars, and is $US750 000. The invoice will be due on 31 May 2017. The amount is guaranteed by a local bank so the payment is certain. The sport rate of the date of transaction is $A1 = $US0.75.

Exports Ltd is concerned that the A$ will fluctuate and thus decides to enter a forward-rate agreement with the bank. According to the agreement, the bank agrees to buy $US 750 000 from Exports Ltd on 31 May 2017 at an agreed forward rate of $A1 = $US0.80.

i. Explain how Exports Ltd has reduced the risk of $A fluctuation by entering theforward-rate agreement. 

ii. How much will Exports Ltd receive from the sale of US$750 000 to the bank, in Australian dollars?

2.Darlington Corporation has the extracted statement of financial position as at 30th June 2017 below:

Statement of financial position before set-off

Loans payable $1 500 000 Loans Receivable $1 800 000

Shareholders’ equity $1 500 000 Non-current assets 1 200 000

$3 000 000 $3 000 000

In addition, Darlington Corporation has an amount of $450 000 owing to Seaview Ltd, and an amount of $600 000 receivable from Seaview Ltd.

i. Assuming a right of set-off exists. Why would Darlington Corporation want to perform a set-off with Seaview Ltd? 

ii. What would be the impact on the debt to asset ratio and the debt to equity ratio of Darlington Corporation, which result from the set-off with Seaview Ltd?

iii. Prepare a post set-off statement of financial position for Darlington Corporation.
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