I bought a $20 App Store Gift Card from Australia and i can't do in-app purchases because my apple id was created in Sri Lanka.

This is what happened: I bought a $20 App store gift card so i can get some gems on my Clash of Clans Account, once i entered the code i went into Clash of Clans and tried purchasing $10 worth of gems. But it says to change into the Sri Lankan Store but when i went to enter the code it said to change the store to Australia. I tried doing it by creating a new Apple ID. Once i went to the billing information i didn't enter my credit card details but i entered my Gift Card Code, although it said it was invalid. I did see i had $20 Credit Balance in my Apple ID. PLS HELP! Reply as soon as possible.

All iTunes gift cards are country-specific, so an Australian iTunes gift card can only be redeemed and used in Australia on an Australian iTunes account. And whilst you are in Australia you can only use the Australian store, the store's terms of use include having to be in a country.
Also all apps (and only other content from the stores) are tied to the account that bought/downloaded it, so only the account that bought an app can do in-app purchases in it - so the new account that you've created won't be able to do in-app purchases in that game as you downloaded by a different account. If you haven't spent any of the gift card on the new account then you could update your old account to have your Australian billing address on it and try contacting iTunes Support and see if they will unredeem the card or transfer its amount to that account : http://www.apple.com/support/itunes/contact/ - click on Contact iTunes Store Support on the right-hand side of the page, then Purchases, Billing & Redemption

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