# Examples And TYU S 1

Topics: 1986, 1980, 1979 Pages: 5 (620 words) Published: April 28, 2015
﻿IAS 21 - The Effects of Changes in Foreign Exchange Rates

Examples and TYU’s

(a)

Ashtree Ltd has a functional currency of the £ and a year ended of 31 August 20X9. On 27 July Ashtree Ltd buys goods from a French supplier for Euro 324,000.

On 19 August Ashtree Ltd pays the French supplier in full.

Exchange rates are as follows:
27 July - £1 = Euro 1.1
19 August - £1 = Euro 1.2

Required

Show the accounting entries for these transactions for the year ended 31 August 20X9.

(b)

A US company which has a functional currency of the \$ sells oranges to a company in Moldovia where the currency is the Moldovian pound (Mol). The oranges were sold on 1 October 20X7 for Mol 400,000 and were paid for on 23 February 20X8.

Exchange rates are as follows:

1 October 20X7 \$1 = Mol 1.45
31 December 20X7 \$1 = Mol 1.34
23 February 20X8 \$1 = Mol 1.54

Required

How does the US company account for these transactions in its financial statements for the year ended 31 December 20X7?

(c)
Everton plc has the £ as it’s functional currency and has a year end of 31 March 20X5. Everton plc took out a Kr500,000 loan from a bank located in Ruritania, where the currency is the Krown (Kr). The money was borrowed in August 20X4, when £1 = Kr 5. At 31 March 20X5 £1 = Kr 4 but no adjustments had been made in respect of this. Required

Explain the correct accounting treatment for this loan and how it would affect the financial statements of Everton plc for the year ended 31 March 20X5.

Example 3

Johnson Ltd is resident in Zaphod, where the currency is the Krown (Kr). Matt Inc bought 80% of Johnson Ltd’s Kr1 shares on 1 January 20X1 for Kr 30 million, when Johnson had reserves of Kr 18 million and \$1=Kr2.4. Matt uses the fair value method to determine NCI, and at 1 January 20X1 the NCI was measured at Kr 6 million.

On 1 March 20X4 Matt borrowed Kr 22 million from a bank in Zaphod, when \$1= Kr2.2. At 31 December 20X4 \$1= Kr 2.

At 31 December 20X4 the SFP’s of the two companies were:

Matt
Johnson

\$'000
Kr'000
Cost in Johnson
12,500

PPE
25,000
42,000

37,500
42,000
Current Assets

Inventories
46,000
27,000
Receivables
25,400
18,000
Cash
9,700
14,000

118,600
101,000

Share Capital
40,000
10,000
Reserves
53,000
74,000

93,000
84,000
Loan
10,000

Payables
15,600
17,000

118,600
101,000

Requirement: Prepare Matt’s consolidated SFP at 31 December 20X4.

Supertutorial Question – Prepare for 23rd April
Question taken from Specimen Paper

Friese Inc bought 14,400 shares in Greene Ltd, based in Ruritania, for Kr 96 million on 1 January 20X2, when \$1 = Kr4. At this date the reserves of Greene were Kr 56 million. The fair value method is used to measure the non-controlling interests, which was valued at Kr 36 million at this date.

Friese borrowed Kr 37.8 million on 1 April 20X5 from a Ruritanian bank, when \$1 = Kr 3.78. At 31 December 20X5 \$1 = Kr 4.5.

The statements of financial position of the two companies at 31 December 20X5 were:

Friese
Greene

\$'000
Kr'000
Cost in Greene
24,000

Property & plant
60,000
103,500

84,000
103,500
Current Assets

Inventories
110,400
56,700
60,960
41,400
Cash
23,280
34,650

278,640
236,250

Share Capital
96,000
24,000
Reserves
127,200
175,800

223,200
199,800
Loan
10,000

45,440
36,450

278,640
236,250

Requirements

(a) Prepare Friese’s consolidated statement of financial position at 31 Dec 20X5. (28 marks)

(b) Explain how exchange differences in relation to subsidiaries with a different functional currency to that of the parent should be dealt with in the financial statements. (5 marks)
(Total 33 marks)