Multinational Company – NBC Institute

CR – May 2017 – L3 – Q3b – Impairment of Assets (IAS 36)

Identify indicators of impairment and discuss how to test for impairment of assets with dependent cash flows.

Question

IAS 36 stipulates how a company should test for impairment of assets. A multinational oil marketing company operating in Nigeria is not sure how to test for impairment of its assets, especially those that do not generate cash flows that are independent of other assets.

Required:

(i) Identify TWO external and TWO internal indicators that an asset of the multinational oil company may have been impaired. (2 Marks)

(ii) Briefly discuss how the multinational oil company should test for impairment of assets that do not generate independent cash flows. (6 Marks)

Answer

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Tags: Cash Flows, IAS 36, Impairment, Multinational Company, Testing
Level: Level 3

Topic: Impairment of Assets (IAS 36)

FM – Nov 2017 – L3 – Q4 – Foreign Exchange Risk Management

Evaluate foreign exchange exposure, determine forward rates, assess hedging strategies, and discuss economic exposure significance for Kudi Limited.

Question

You are the Financial Director of Kudi Limited, a Nigerian company that imports raw materials mainly from Tiko (currency: T$) and exports finished products to Katuga (currency: K$). Kudi is partly financed by a loan raised in the domestic market and usually hedges its foreign currency exposure using forward or money markets. Most customers are allowed a 3-month credit. The company recently sold products to a customer in Katuga for K$20 million.

Available Information:

Exchange Rate	K$ per N	T$ per N
Spot Rate	1.9600	1.4600
1 Month Forward	1.9580	1.4579

Central Bank Base Rate Per Annum	Nigeria	Katuga	Tiko
Rate (%)	5.5%	4.25%	3.75%

Required:

(a) Comment on the Interest Rate Parity (IRP) and Purchasing Power Parity (PPP) methods for estimating exchange rates. (6 Marks)

In answering the following questions, include relevant calculations:

Given that interest rates are higher in Nigeria than in Tiko, should T$ be depreciating against the naira and thus trading at a discount? (3 Marks)
Determine the 3-month K$ forward rate of exchange implied by the given information and calculate the naira receipts expected in 3 months from the customer in Katuga. (3 Marks)
Assess whether buying T$ on the spot market now and placing it on deposit would be a sensible policy for Kudi. (3 Marks)

(b) Discuss the concept and significance of foreign exchange economic exposure for a multinational company. (5 Marks)

(Total 20 Marks)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Currency Hedging, Economic Exposure, Financial risk management, Foreign Exchange, Forward Rate, Interest Rate Parity, Multinational Company, Purchasing Power Parity
Level: Level 3

Topic: Foreign Exchange Risk Management
Series: NOV 2017

CR – May 2017 – L3 – Q3b – Impairment of Assets (IAS 36)

Identify indicators of impairment and discuss how to test for impairment of assets with dependent cash flows.

Question

Required:

(i) Identify TWO external and TWO internal indicators that an asset of the multinational oil company may have been impaired. (2 Marks)

(ii) Briefly discuss how the multinational oil company should test for impairment of assets that do not generate independent cash flows. (6 Marks)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Cash Flows, IAS 36, Impairment, Multinational Company, Testing
Level: Level 3

Topic: Impairment of Assets (IAS 36)

FM – Nov 2017 – L3 – Q4 – Foreign Exchange Risk Management

Evaluate foreign exchange exposure, determine forward rates, assess hedging strategies, and discuss economic exposure significance for Kudi Limited.

Question

Available Information:

Exchange Rate	K$ per N	T$ per N
Spot Rate	1.9600	1.4600
1 Month Forward	1.9580	1.4579

Central Bank Base Rate Per Annum	Nigeria	Katuga	Tiko
Rate (%)	5.5%	4.25%	3.75%

Required:

(a) Comment on the Interest Rate Parity (IRP) and Purchasing Power Parity (PPP) methods for estimating exchange rates. (6 Marks)

In answering the following questions, include relevant calculations:

Given that interest rates are higher in Nigeria than in Tiko, should T$ be depreciating against the naira and thus trading at a discount? (3 Marks)
Determine the 3-month K$ forward rate of exchange implied by the given information and calculate the naira receipts expected in 3 months from the customer in Katuga. (3 Marks)
Assess whether buying T$ on the spot market now and placing it on deposit would be a sensible policy for Kudi. (3 Marks)

(b) Discuss the concept and significance of foreign exchange economic exposure for a multinational company. (5 Marks)

(Total 20 Marks)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Currency Hedging, Economic Exposure, Financial risk management, Foreign Exchange, Forward Rate, Interest Rate Parity, Multinational Company, Purchasing Power Parity
Level: Level 3

Topic: Foreign Exchange Risk Management
Series: NOV 2017

Question Tag: Multinational Company

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CR – May 2017 – L3 – Q3b – Impairment of Assets (IAS 36)

Identify indicators of impairment and discuss how to test for impairment of assets with dependent cash flows.

FM – Nov 2017 – L3 – Q4 – Foreign Exchange Risk Management

Evaluate foreign exchange exposure, determine forward rates, assess hedging strategies, and discuss economic exposure significance for Kudi Limited.

CR – May 2017 – L3 – Q3b – Impairment of Assets (IAS 36)

Identify indicators of impairment and discuss how to test for impairment of assets with dependent cash flows.

FM – Nov 2017 – L3 – Q4 – Foreign Exchange Risk Management

Evaluate foreign exchange exposure, determine forward rates, assess hedging strategies, and discuss economic exposure significance for Kudi Limited.

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CR – May 2017 – L3 – Q3b – Impairment of Assets (IAS 36)

Identify indicators of impairment and discuss how to test for impairment of assets with dependent cash flows.

You're reporting an error for "CR – May 2017 – L3 – Q3b – Impairment of Assets (IAS 36)"

FM – Nov 2017 – L3 – Q4 – Foreign Exchange Risk Management

Evaluate foreign exchange exposure, determine forward rates, assess hedging strategies, and discuss economic exposure significance for Kudi Limited.

You're reporting an error for "FM – Nov 2017 – L3 – Q4 – Foreign Exchange Risk Management"

CR – May 2017 – L3 – Q3b – Impairment of Assets (IAS 36)

Identify indicators of impairment and discuss how to test for impairment of assets with dependent cash flows.

You're reporting an error for "CR – May 2017 – L3 – Q3b – Impairment of Assets (IAS 36)"

FM – Nov 2017 – L3 – Q4 – Foreign Exchange Risk Management

Evaluate foreign exchange exposure, determine forward rates, assess hedging strategies, and discuss economic exposure significance for Kudi Limited.

You're reporting an error for "FM – Nov 2017 – L3 – Q4 – Foreign Exchange Risk Management"

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