Question Tag: IAS 21

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  • 5 Marks

CR – Nov 2016 – L3 – Q1b – Foreign Currency Transactions and Translation (IAS 21)

Explanation of IAS 21 translation requirements for assets, liabilities, income, and expenses of a foreign subsidiary in consolidation.

The directors of Bata Plc are considering the acquisition of a foreign subsidiary to facilitate foreign exchange access. However, they are uncertain about the requirements of IAS 21, ‘The Effects of Changes in Foreign Exchange Rates,’ for translating a foreign subsidiary’s financial statements.

Required: Briefly explain to the directors of Bata Plc how the assets, liabilities, income, and expenses of a foreign subsidiary, including the resulting goodwill, are translated for consolidation purposes and the treatment of exchange differences arising from the translation.

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  • 15 Marks

CR – May 2018 – L3 – SC – Q6 – Foreign Currency Transactions and Translation (IAS 21)

Discuss treatment of foreign currency transactions and accounting for investments in subsidiaries.

Omotola Nigeria Plc is a conglomerate which operates in different sectors of the economy. The company has many subsidiaries and associates across the six continents of the world, and its head office is located in Lagos, Nigeria. The shares of the company are listed on the Nigerian Stock Exchange.

The company is trying to finalize its financial statements for the year ended April 30, 2018, and the following accounting issues are being considered by the chief accountant based on the submission by the assistant accountant who is yet to complete her professional examinations with the Institute of Chartered Accountants of Nigeria. The functional and presentation currency of Omotola Nigeria Plc. is Naira. The following transactions relate to the company:

(i) On May 1, 2017, Omotola Nigeria Plc. bought an investment property in the United States for $1,000,000. The company uses the fair value model of IAS 40 to account for the investment property, and the fair value at April 30, 2018, is determined to be $1,200,000. The assistant accountant is unsure which exchange rate to use in translating the investment property at the year end and how to recognize any exchange difference that may arise.

(ii) On May 1, 2017, Omotola Nigeria Plc. acquired a wholly owned subsidiary in the United States of America. The goodwill that arose on the acquisition of this subsidiary is $400,000. In addition, the company invested in an equity instrument on the same date, which is measured at fair value through other comprehensive income (OCI) in accordance with the requirements of IFRS 9.

Required:

a. In accordance with the requirement of IAS 21 – Effect of Changes in Foreign Exchange Rates, discuss the treatment of foreign currency transactions and the gain or loss arising therefrom.
(7 Marks)

b. Discuss how the transaction in (i) will be accounted for in the financial statements of Omotola Nigeria Plc. for the year ended April 30, 2018, in accordance with IAS 21.
(4 Marks)

c. Discuss how the transaction in (ii) will be accounted for in the financial statements of Omotola Nigeria Plc. for the year ended April 30, 2018, in accordance with IAS 21.
(4 Marks)

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  • 5 Marks

FR – May 2020 – L2 – Q5c – Functional Currency

Discuss the functional currency concept in accordance with IAS 21 and how it is determined.

Discuss what is meant by the concept of an entity’s functional currency and how it may be determined in accordance with IAS 21: The Effects of Changes in Foreign Exchange Rates. (5 marks)

 

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  • 5 Marks

FR – Nov 2019 – L2 – Q5c – Financial Reporting Standards and Their Applications

Calculate amounts recognized in Profit or Loss and Other Comprehensive Income for foreign property purchased and revalued.

On 1 August 2018, Charlie Ltd, whose functional currency is the cedi, bought a property in Morocco for DH40 million. The property had a 20-year useful economic life with no residual value estimated. On 31 July 2019, the property was revalued to DH45 million.

Exchange rates were:

1 January 2018: GH¢1 = DH 1.32
1 August 2018: GH¢1 = DH 1.25
31 July 2019: GH¢1 = DH 1.125
Required:
In accordance with IAS 21: The Effects of Changes in Foreign Exchange Rates and IAS 16: Property, Plant & Equipment, how much should be recognized in the Statement of Profit or Loss and Other Comprehensive Income for the year ended 31 July 2019?

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  • 3 Marks

FR – May 2016 – L2 – Q3e – Financial Reporting Standards and Their Applications

Identify three factors in determining functional currency under IAS 21.

The functional currency, according to IAS 21 The Effects of Changes in Foreign Exchange Rates, is the currency of the primary economic environment where the entity operates.

Required:
Identify THREE factors in accordance with IAS 21 that an entity will consider in determining its functional currency.

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  • 5 Marks

CR – Nov 2021 – L3 – Q3a – Foreign currency

Explain the disclosure requirements when financial information is presented using convenience translation in a different currency under IAS 21.

An entity sometimes displays its financial statements or other financial information in a currency that is different from either its functional currency or its presentation currency simply by translating all amounts at end-of-period exchange rates. This is sometimes called a convenience translation. A result of making a convenience translation is that the resulting financial information does not comply with all IFRS, particularly IAS 21: The Effects of Changes in Foreign Exchange Rates.

Required:

Explain the disclosure requirements when convenience translation is used to display financial information.

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  • 7 Marks

CR – Mar 2024 – L3 – Q3a – Foreign currency

This question involves determining the functional currency of Mongu Plc and discussing the factors influencing this decision.

Mongu Plc (Mongu) is a diversified entity listed on the Ghana Stock Exchange. Its financial year ends on 30 September. Mongu Plc operates through its local and foreign subsidiaries. Most of Mongu’s revenues come from its foreign operations, but Mongu incurs a significant portion of its costs locally in Ghana. The local currency is the Ghana Cedi (GH¢), but Mongu’s subsidiaries operate in regions that use other currencies.

Required:
In accordance with IAS 21: The Effects of Changes in Foreign Exchange Rates, identify the functional currency of Mongu Plc, considering the relevant factors, and explain how exchange differences should be accounted for.

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  • 6 Marks

CR – Nov 2019 – L3 – Q2a – Foreign currency

Analyze foreign currency transactions, their impact on financial statements, and the application of hedging instruments.

a) Nyinahini Ltd (Nyinahini) is a company reporting under IFRS. Nyinahini normally operates only within the country where its buildings are physically located. Recently, it entered into a contract to supply its products to a new client based in South Africa. All the work was completed in the period October to November 2018. The (fixed) contract price of 100 million Rand has been agreed upon as denominated in South African Rand. The full amount was invoiced on 1 December 2018 when the exchange rate was GH¢1 = 10.1889 Rand. The new client paid 50 million Rand in advance on 1 November 2018 when the exchange rate was GH¢1 = 9.9783 Rand. The balance will be paid in two equal instalments on 31 March 2019 and 30 June 2019. The exchange rate at 31 December 2018 was GH¢1 = 10.5037 Rand.

Nyinahini decided to eliminate exchange rate differences on the final two payments and entered into two forward rate agreements on 1 December 2018 to sell the appropriate amount of Rand on 31 March 2019 and 30 June 2019, and set up the relevant documentation to treat them as fair value hedges of the recognized receivables. At 31 December 2018, the two contracts for settlement on 31 March 2019 and 30 June 2019 were valued at GH¢148,000 collectively, as an asset from Nyinahini’s point of view.

Required:
Set out and discuss the accounting treatment of the above items, including relevant calculations, as the information provided permits, in the financial statements of Nyinahini for the year ended 31 December 2018.

(6 marks)

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  • 5 Marks

CR – Nov 2016 – L3 – Q1b – Foreign Currency Transactions and Translation (IAS 21)

Explanation of IAS 21 translation requirements for assets, liabilities, income, and expenses of a foreign subsidiary in consolidation.

The directors of Bata Plc are considering the acquisition of a foreign subsidiary to facilitate foreign exchange access. However, they are uncertain about the requirements of IAS 21, ‘The Effects of Changes in Foreign Exchange Rates,’ for translating a foreign subsidiary’s financial statements.

Required: Briefly explain to the directors of Bata Plc how the assets, liabilities, income, and expenses of a foreign subsidiary, including the resulting goodwill, are translated for consolidation purposes and the treatment of exchange differences arising from the translation.

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  • 15 Marks

CR – May 2018 – L3 – SC – Q6 – Foreign Currency Transactions and Translation (IAS 21)

Discuss treatment of foreign currency transactions and accounting for investments in subsidiaries.

Omotola Nigeria Plc is a conglomerate which operates in different sectors of the economy. The company has many subsidiaries and associates across the six continents of the world, and its head office is located in Lagos, Nigeria. The shares of the company are listed on the Nigerian Stock Exchange.

The company is trying to finalize its financial statements for the year ended April 30, 2018, and the following accounting issues are being considered by the chief accountant based on the submission by the assistant accountant who is yet to complete her professional examinations with the Institute of Chartered Accountants of Nigeria. The functional and presentation currency of Omotola Nigeria Plc. is Naira. The following transactions relate to the company:

(i) On May 1, 2017, Omotola Nigeria Plc. bought an investment property in the United States for $1,000,000. The company uses the fair value model of IAS 40 to account for the investment property, and the fair value at April 30, 2018, is determined to be $1,200,000. The assistant accountant is unsure which exchange rate to use in translating the investment property at the year end and how to recognize any exchange difference that may arise.

(ii) On May 1, 2017, Omotola Nigeria Plc. acquired a wholly owned subsidiary in the United States of America. The goodwill that arose on the acquisition of this subsidiary is $400,000. In addition, the company invested in an equity instrument on the same date, which is measured at fair value through other comprehensive income (OCI) in accordance with the requirements of IFRS 9.

Required:

a. In accordance with the requirement of IAS 21 – Effect of Changes in Foreign Exchange Rates, discuss the treatment of foreign currency transactions and the gain or loss arising therefrom.
(7 Marks)

b. Discuss how the transaction in (i) will be accounted for in the financial statements of Omotola Nigeria Plc. for the year ended April 30, 2018, in accordance with IAS 21.
(4 Marks)

c. Discuss how the transaction in (ii) will be accounted for in the financial statements of Omotola Nigeria Plc. for the year ended April 30, 2018, in accordance with IAS 21.
(4 Marks)

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  • 5 Marks

FR – May 2020 – L2 – Q5c – Functional Currency

Discuss the functional currency concept in accordance with IAS 21 and how it is determined.

Discuss what is meant by the concept of an entity’s functional currency and how it may be determined in accordance with IAS 21: The Effects of Changes in Foreign Exchange Rates. (5 marks)

 

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  • 5 Marks

FR – Nov 2019 – L2 – Q5c – Financial Reporting Standards and Their Applications

Calculate amounts recognized in Profit or Loss and Other Comprehensive Income for foreign property purchased and revalued.

On 1 August 2018, Charlie Ltd, whose functional currency is the cedi, bought a property in Morocco for DH40 million. The property had a 20-year useful economic life with no residual value estimated. On 31 July 2019, the property was revalued to DH45 million.

Exchange rates were:

1 January 2018: GH¢1 = DH 1.32
1 August 2018: GH¢1 = DH 1.25
31 July 2019: GH¢1 = DH 1.125
Required:
In accordance with IAS 21: The Effects of Changes in Foreign Exchange Rates and IAS 16: Property, Plant & Equipment, how much should be recognized in the Statement of Profit or Loss and Other Comprehensive Income for the year ended 31 July 2019?

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  • 3 Marks

FR – May 2016 – L2 – Q3e – Financial Reporting Standards and Their Applications

Identify three factors in determining functional currency under IAS 21.

The functional currency, according to IAS 21 The Effects of Changes in Foreign Exchange Rates, is the currency of the primary economic environment where the entity operates.

Required:
Identify THREE factors in accordance with IAS 21 that an entity will consider in determining its functional currency.

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  • 5 Marks

CR – Nov 2021 – L3 – Q3a – Foreign currency

Explain the disclosure requirements when financial information is presented using convenience translation in a different currency under IAS 21.

An entity sometimes displays its financial statements or other financial information in a currency that is different from either its functional currency or its presentation currency simply by translating all amounts at end-of-period exchange rates. This is sometimes called a convenience translation. A result of making a convenience translation is that the resulting financial information does not comply with all IFRS, particularly IAS 21: The Effects of Changes in Foreign Exchange Rates.

Required:

Explain the disclosure requirements when convenience translation is used to display financial information.

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  • 7 Marks

CR – Mar 2024 – L3 – Q3a – Foreign currency

This question involves determining the functional currency of Mongu Plc and discussing the factors influencing this decision.

Mongu Plc (Mongu) is a diversified entity listed on the Ghana Stock Exchange. Its financial year ends on 30 September. Mongu Plc operates through its local and foreign subsidiaries. Most of Mongu’s revenues come from its foreign operations, but Mongu incurs a significant portion of its costs locally in Ghana. The local currency is the Ghana Cedi (GH¢), but Mongu’s subsidiaries operate in regions that use other currencies.

Required:
In accordance with IAS 21: The Effects of Changes in Foreign Exchange Rates, identify the functional currency of Mongu Plc, considering the relevant factors, and explain how exchange differences should be accounted for.

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  • 6 Marks

CR – Nov 2019 – L3 – Q2a – Foreign currency

Analyze foreign currency transactions, their impact on financial statements, and the application of hedging instruments.

a) Nyinahini Ltd (Nyinahini) is a company reporting under IFRS. Nyinahini normally operates only within the country where its buildings are physically located. Recently, it entered into a contract to supply its products to a new client based in South Africa. All the work was completed in the period October to November 2018. The (fixed) contract price of 100 million Rand has been agreed upon as denominated in South African Rand. The full amount was invoiced on 1 December 2018 when the exchange rate was GH¢1 = 10.1889 Rand. The new client paid 50 million Rand in advance on 1 November 2018 when the exchange rate was GH¢1 = 9.9783 Rand. The balance will be paid in two equal instalments on 31 March 2019 and 30 June 2019. The exchange rate at 31 December 2018 was GH¢1 = 10.5037 Rand.

Nyinahini decided to eliminate exchange rate differences on the final two payments and entered into two forward rate agreements on 1 December 2018 to sell the appropriate amount of Rand on 31 March 2019 and 30 June 2019, and set up the relevant documentation to treat them as fair value hedges of the recognized receivables. At 31 December 2018, the two contracts for settlement on 31 March 2019 and 30 June 2019 were valued at GH¢148,000 collectively, as an asset from Nyinahini’s point of view.

Required:
Set out and discuss the accounting treatment of the above items, including relevant calculations, as the information provided permits, in the financial statements of Nyinahini for the year ended 31 December 2018.

(6 marks)

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