CHAPTER-5 IAS 21: Foreign Currency Transactions

CHAPTER-5
INTERNATIONAL ACCOUNTING STANDARD 21
FOREIGN CURRENCY TRANSACTIONS

LO1: INTRODUCTION
Now a days businesses have transactions that are denominated in foreign currency. These transactions
need to be translated into the company’s own currency in order to record them in its ledger accounts.
For example:
 a Pakistani company may take out a loan from a French bank in Euros but will record the loan in its
ledger accounts in Rupees; or
 a Pakistani company may buy goods from a Japanese company invoiced in Yen but will record the
purchase and the trade payable in Rupees in its ledger accounts.
LO2: DEFINITION
Functional currency: The currency of the primary economic (not legal) environment in which an entity
operates.
1. Normally it is referred as local currency.
2. Journal entries are made in this currency
3. Indicators:
Primary indicators [Para 9]
(a) the currency:
(i) that mainly influences sales prices for goods and services and
(ii) of the country whose competitive forces and regulations mainly determine the sales
prices of its goods and services.
(b) the currency that mainly influences labour, material and other costs of providing goods or
services
Secondary indicators [Para 10]
- The currency in which funds are generated by issuing debt and equity
- The currency in which receipts from operating activities are usually retained.

Note: The functional currency is not necessarily the currency of the country in which the entity is
based but normally it is.
Foreign currency: A currency other than the functional currency of the entity.
Exchange rate: The rate of exchange between two currencies.
Spot rate: The exchange rate at the date of the transaction.
Closing rate: The spot exchange rate at the end of the reporting period
Exchange difference: A difference resulting from translating a given number of units of one currency
into another currency at different exchange rates.
Monetary items: Units of currency held and assets and liabilities to be received or paid (in cash), in a
fixed number of currency units. Examples of monetary items include cash itself, loan receivable and
payable, trade payables, trade receivables and interest payable, pension payable, gratuity payable,
dividend payable.
Non-monetary items are not defined by IAS 21, but they are items that are not monetary items. They
include tangible non-current assets, investment properties, investment in shares, inventories and deferred
taxation.

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Presentation currency: The currency in which the financial statements of an entity are presented.
Normally it is same as functional currency. (Refer example below)
Presentation and functional currencies
Example
P is a UK-registered mining company whose shares are traded on the London Stock Exchange. Its
operating activities take place in the gold and diamond mines of South Africa.
a) What is the presentation currency of P?
b) What is its functional currency?
c) P bought specialised mining equipment from the US, invoiced in US dollars. What type of currency is
the US dollar, using the IAS 21 definitions?
Answer
a) The presentation currency (reporting currency) is sterling (UK pounds). This is a requirement of the
UK financial markets regulator for UK listed companies.
b) The functional currency is likely to be South African Rand, even though the company is based in the
UK. This is because its operating activities take place in South Africa and so the company will be
economically dependent on the Rand if the salaries of most of its employees, and most operating
expenses and sales are in Rand.
c) The US dollars are ‘foreign currency’ for the purpose of preparing P’s accounts.
IAS 21 requires P to prepare its financial statements in its functional currency (Rand).
However, P is permitted to use Pound Sterling as its presentation currency.

LO3: TREATMENT OF MONRTARY AND NON-MONNETARY ITEMS

Concept of monetary and non-monetary

Monetary items 1. Debtor (Cash is receivable)

(receivable /payable) 2. Creditor (Cash is payable)
3. Loan receivable/payable
Money is 4. Interest receivable/payable
receivable/payable 5. Gratuity payable/ Dividend payable
6. Cash in hand (Currency units)
7. Cash at bank (Currency units)
8. Lease liability
9. Current tax liability
10. Deferred Tax assets/liability
Non-Monetary items 1. Property, plant and equipment
2. Intangible
3. Investment in shares (Equity investments)
4. Biological assets (IAS-41)
5. Inventory
6. Advance paid for goods (Right to receive goods)
7. Advance received for goods (Liability to provide service)

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NON-MONETARY ITEMS (Examples are given below)

1. On initial Recorded at the spot rate on the date of the transaction.
recognition
2. At the end of a No retranslation is required. The transaction is left at the original spot rate.
financial year
Note: If non-monetary item is carried at fair value than Re-translate at the
exchange rate prevailing at the date when fair value is determined. The
exchange difference is recognized in the same location as the revaluation
gain or loss.
MONETARY ITEMS (Examples are given below)
3. On initial - a transaction must be translated at the spot rate on the date of the
recognition transaction.

Note: For administrative feasibility, IAS 21 allows entities to use an average

rate for a time period (weekly rate or monthly rate), if the exchange rate does
not fluctuate significantly over the period.
4. At the end of a - The monetary items must be retranslated at the rate ruling at balance
financial year sheet date.
- The exchange difference is recognised in the statement of profit or
loss.
Note: If transaction is settled before year end, this retranslation will not be
required.
5. When the - The receipt or payment must be recorded at the rate ruling at the date
transaction is of the receipt or payment.
settled - The exchange difference is recognised in the statement of profit or
loss.
Note: Interest incomes and expenses are recorded on average rate over the period.

LO4: OTHER AREAS

Illustrative example-1
I have 3 $ in my pocket.
1$ = Rs. 160
How many pak rupees do I have?
Answer
= 3$ x Rs. 160 = Rs. 480

Illustrative example-2
I have 3 $ in my pocket.
Exchange Rate can be given in two form:
One way (1 is written with foreign currency) 2nd way (1 is written with local currency)
1 $ = Rs . 160 1 Rs. = 0.00625 $

= 3US $ x Rs. 160 = 3 US $

0.00625

= Rs. 480 = Rs. 480

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Question-1
On 1 April 2008 we paid advance of $ 500. Goods are received on 1 June 2008.
The prevailing exchange rates are:
1 April 2008 $1: Rs. 110
1 June 2008 $1: Rs. 113

Company’s year-end is 31 December 2008.

Required:
Record the journal entries for these transactions.

Note: Whenever advance is paid before receipt of goods the goods will be recorded at advance price paid.
The goods will not be recorded at exchange rate prevailing on the date of arrival of goods.

Discussion of FOB (Free on Board) and CIF (Cost insurance and Freight)
1. Free on board
We Record purchase when goods are loaded at foreign port. (Risks and rewards transferred to us
at foreign port)
2. Cost insurance and Freight
We record purchase when goods safely reach at our port (say karachi in Pakistan).

Example-1
Royal fan is a company operating in Pakistan and registered in Pakistan stock Exchange. It buys raw
material from Pakistan and sell goods in Pakistan.
1. Functional currency: Pak rupees (We will prepare accounting records (Journal entries) in Pak
rupees)
2. Presentation currency: Pak rupees
3. Royal Fan imported plant from US and now US dollar is Foreign currency

Example-2
Japanese Construction company is incorporated in Japan. It has operations in Pakistan only where it
constructs bridges.
1. Functional currency: Pak rupees (We will prepare accounting records (Journal entries) in Pak
rupees)
2. Presentation currency: Japanese Yen. (It can also present its accounts in Pak rupees if requested
by Pakistan Government.)
3. Japanese Construction company imported plant from US and now US dollar is Foreign currency

LO5: TRANSLATION FORM FUNCTIONAL CURRENCY TO PRESENTATION

CURRENCY
Will be covered in Volume-2 of this book

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CHAPTER-5
IAS 21
PRACTICE QUESTIONS
Question-1
On 1 April 2008 Anjum Ltd. buys goods from an overseas supplier. The goods are priced at $ 540.
Payment is made on 31 May 2008.
The prevailing exchange rates are:
1 April 2008 $1: Rs. 112
31 May 2008 $1: Rs. 123

Company’s year-end is 31 December 2008.

Required:
Record the journal entries for these transactions.

Question-2
Bashir Ltd. having year end of 30 June, buys goods from an overseas supplier on 1 April 2008. The goods
are priced at $ 230. Payment is made on 31 July 2008.
The prevailing exchange rates are:
1 April 2008 $1: Rs. 125
30 June 2008 $1: Rs. 134
31 July 2008 $1: Rs. 131

Required:
Record the journal entries for these transactions.

Question-3
ABC plc. has a year end of 31 December 2001.On 25 Oct 2001 ABC buys goods from a Swedish supplier
for Swedish Krona (SWK) 286. Payment is made on 15.Feb.2002.
Rates of SWK are as follows:

25 Oct 2001 1 SWK = Rs. 12.2

31 Dec 2001 1 SWK = Rs. 9.4
15 Feb 2002 1 SWK = Rs. 13.2

Required:
Show the accounting entries for the above transactions.

Question-4
J. Brand sold goods to overseas customer for $ 350 on 28 March 2003 when the exchange rate was $1:
Rs. 140.
The customer pays on 01 April 2003 when the rate was $1: Rs. 148.

Required:
Show the accounting entries for the above transactions. Assume year end is June 30.

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Question-5
Habib sold goods to overseas customer for UK £ 935 on 12 December 2011. Year end is 31 December 11
and payment is received on 15.June.2012.
Rates of UK £ are as follows:
12 December 2011 UK £ 1 = Rs. 180
31 December 2011 UK £ 1 = Rs. 170
15 June 2012 UK £ 1 = Rs. 184
Required:
Show the accounting entries for the above transactions.

Question-6
On 25 June 19, Riaz sold goods to a foreign customer for US $800. 30% payment will be received at end
of July and remaining at end of August.
Rates of US $ are as follows:
25 June 19 $1 = Rs. 125
30 June 19 $1 = Rs. 113
31 July 19 $1 = Rs. 128
31 August 19 $1 = Rs. 130
Assume year end is 30 June.

Required:
Show the accounting entries for the above transactions.

Question-7
A Company purchased a Fixed Asset on 1 December 2012 for UK £ 950 and made payment on 12
January 2013.
Rates of UK £ are as follows:
01 December 2012 UK £ 1 = Rs. 170
31 December 2012 UK £ 1 = Rs. 182
12 January 2013 UK £ 1 = Rs. 175
Life of Asset is 8 years.
Required:
Show the accounting entries for the above transactions in the books of the Company.

Question-8
Honda Atlas cars bought a manufacturing plant from a supplier at an agreed price of Japanese Yen
¥30,000 on 1 July 2018. The payment will be made as follows:
60% payment on 1 September 2018
40% payment on 1 March 2019
Useful life of plant is 10 years. The recoverable amount of plant was estimated of Rs. 25,000 on 31
December, 2019.
Following exchange rates in rupees are available:
1.07.18 1.09.18 31.12.18 1.03.19 31.12.19
1.32 1.25 1.38 1.28 1.41
Year end is 31 December.
Required:
Prepare Journal entries for 31 December 2018 and 2019.
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Question-9
On 1 April 2008 Haris Ltd. buys goods from an overseas supplier, the goods are priced at Swedish Krona
(Kr) 54,000. Payment is made 2 months later on 31 May 2008.
The prevailing exchange rates are:
1 April 2008 Kr 1.80 : Rs. 1
31 May 2008 Kr 1.75 : Rs. 1
Assume year end is 30 June.

Required:
Record the journal entries for these transactions.

Question-10
Collins Ltd, a company that uses $ as its functional currency, buys goods from an overseas supplier on 1
April 2008. The goods are priced at Kr 54,000. Payment is still outstanding at the reporting date 30 June
2008.
The prevailing exchange rates are:
1 April 2008 Kr 1.80 : $1
30 June 2008 Kr 1.70 : $1

Required:
Record the journal entries for this transaction.

Question-11
A Pakistani company whose functional currency is the rupee deposited $90,000 into a dollar current
account in a bank on 30 June 3018.
The company paid an additional $10,000 into the account on 30 September 2018.
There were no other movements on this account.
Exchange rates over the period were as follows:
30 June Rs.l00/$.
30 September Rs.99/$.
31 December (year-end) Rs.95/$.

Required:
Calculate the exchange differences on 31 December 2018.

Question-12
A Pakistani company whose functional currency is the rupee borrowed $90,000 on 30 June 2018. The
company recognised an interest accrual of $10,000 at its year-end (31 December 2018). Exchange rates
over the period were as follows:
30 June: Rs.l00/$.
Average for the period from 30th June to 31st Dec 2018 is Rs.99/$.
31 December (year-end): Rs.95/$.
Required:
Prepare Journal entries for the year ended 31 December 2018 and also Prepare Balance sheet and P/L extracts.

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Question-13
Ali Limited (AL) is a retailer of fine furniture based in Pakistan. On October 19, 2017, AL purchase
identical tables from a US based supplier for a total of US $1,500.
The exchange rates, on various dates during the year, are as follows:
Date 1 Rs : US $ (OR) 1 US $ : Rs
October 19, 2017 1 Rs. : $ 0.0080 1 $. : Rs. 125
December 15, 2017 1 Rs. : $ 0.0085 1 $. : Rs. 117.64
December 31, 2017 1 Rs. : $ 0.0095 1 $. : Rs. 105.26
February 03, 2018 1 Rs. : $ 0.0100 1 $. : Rs. 100.00
It sold 75% tables on December 15, 2017 with the remaining 25% tables being sold on February 03, 2018.
The tables were paid for by AL on February 03, 2018.
Required:
Determine, in accordance with the IAS 21 the impact of the above transaction on:
 the profit of Ali Limited (AL) for the year ended December 31, 2017 and
 the statement of financial position at December 31, 2017
Question-14
An entity based in the US sells goods to overseas for Kr 200,000 on 28 March 2003 when the exchange
rate was Kr 0.65:$1.
The customer pays in April 2003 when the rate was Kr 0.70:$1.
The exchange rate at the year ended 30 June 2003 was Kr 0.75:$1.
Required:
a) Prepare the journal entries to record the sale of the goods by the US entity.
b) Show the journal entries to record the payment in April 2003.
c) If the amount was outstanding at the year end, what would be the gain or loss to be taken to
statement of profit or loss?

Question-15
Acer limited (AL) is an entity whose functional currency is the Pak rupees (PKR) and has an annual
reporting date of 31 December.
On 1 January 2007, AL purchased an item of plant and equipment from Hong Kong for 50,000 Hong
Kong Dollar (HK$) to be used in Hong Kong. AL has a policy of applying revaluation model. Useful life
of plant is 5 years.
The fair values and relevant spot exchange rates are as follows:
Date 1 January 07 1 January 08 1 January 09
Fair value ($) 50,000 40,000 60,000
Exchange Rate ($ 1) Rs. 19 Rs. 18 Rs. 17.5

Required:
a) Prepare relevant extracts from Acer limited (AL) financial statements the year ended 31 December
2007, 2008 and 2009 to illustrate the impact of the above transactions.
b) Also Prepare Journal entries for the relevant years

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CHAPTER-5 IAS 21: Foreign Currency Transactions

Question-16
Gwadar limited (GL) is an entity whose functional currency is the Pak rupees (PKR) and has an annual
reporting date of 31 December.
On 1 January 2003, GL purchased an item of plant and equipment from South Africa for Rands (R) 400
million. GL has a policy of applying revaluation model. Useful life of plant is 5 years.
The fair values and relevant spot exchange rates are as follows:
Fair value Exchange
(R) Rate (R 1)
Rs. in million
1 January 2003 400 Rs. 10
1 January 2004 350 Rs. 11
1 January 2005 180 Rs. 9

Required:
Prepare relevant extracts from Gwadar limited (GL) financial statements the year ended 31 December
2003, 2004 and 2005 to illustrate the impact of the above transactions.

Question-17
Toyota Limited bought a manufacturing plant from a supplier at an agreed price of Japanese Yen ¥ 30,000
on 1 July 2018. The payment will be made on 1 March 2019.
Following exchange rates in rupees are available:
Date 1.07.18 31.12.18 1.03.19 31.12.19
Exchange Rate (Rs.) 1.32 1.38 1.28 1.33
The company uses the straight line method to depreciate its plant. The plant is expected to have useful life
of 10 years. The recoverable amount of plant was estimated of Rs. 25,000 on 31 December, 2019.
Company year-end is 31 December.
Required:
a) Prepare Journal entries for 31 December 2018 and 2019.
b) Prepare Balance Sheet and Profit and loss extracts for the year ended 31 December 2018 and 2019.

Question-18
Raanchi Limited (RL), a company whose functional currency is Pak Rupees, incurred the following
transactions with foreign companies during the year ended June 30, 2019.
a) RL bought an Intangible asset for 200,000 Dinars on March 19, 2019 and paid for on June 25,
2019.
b) On February 27, 2019 RL sold goods which had cost Rs. 40,000 for 400,000 Baht to a company
whose currency was Thai Baht. The proceeds were received on May 25, 2019.
c) On April 02, 2019 RL sold goods which cost Rs. 200,000 for 52,694 Rand to a company whose
currency was South African Rands. The amount was outstanding at June 30, 2019 but the proceeds
were received in Rands on August 07, 2019 when the exchange rate was 1Rs. = 0.088 Rands.
d) RL lent 600,000 Ringgit to Malaysian company on May 25, 2019 and is receivable in two year
time.

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Exchange rates relevant to the above transactions to Rs. 1 are given below:
Date Ringgit (RM) Dinars (AED) Thai Baht (฿) Rand (R)
27-Feb-19 - - 7.00 -
19-Mar-19 - 0.650 - -
25-May-19 1.500 - 6.700 -
2-Apr-19 - - - 0.096
25-June-19 - 0.500 - -
30-June-19 2.000 0.540 7.500 0.1
Required:
Prepare Journal entries for the year ended 30 June 2019.

Question-19
Inter-city Travel Limited (ITL), a company incorporated in Pakistan whose functional currency is Pak
Rupees (Rs.), obtained three year loan from International Monetary Bank (IMB) in US Dollars ($) .
The terms of the loan were as follows:
a) IMB transferred US $2,000 into bank account of ITL on 1 January 2017.
b) The interest rate on the loan is 10% per annum payable each year on 31st December.
c) Loan is repayable at the end of third year.
Relevant exchange rates are:
Date Spot rates Average rates
1 January 2017 US $ 1: Rs 100 -
31 December 2017 US $ 1: Rs 110 -
31 December 2018 US $ 1: Rs 105 -
31 December 2019 US $ 1: Rs 120
1 January 2017 - 31 December 2017 - US $ 1: Rs 107.50
1 January 2018 - 31 December 2018 - US $ 1: Rs 102.50
1 January 2019 - 31 December 2019 - US $ 1: Rs 110.00
Required:
Show the journal entries required to record the above loan transaction in Inter-city Travel Limited
accounting records for the years ended 31 December 2017, 31 December 2018 & 31 December 2019.

Question-20
Mahmood & Sons Limited (MSL), whose functional currency is Pak Rupees, has provided a three year
loan agreement to John Cena Limited (JCL) (a company incorporated in Malaysia).
The following information relating to loan agreement is available:
a) MSL gave a loan of MYR 2.1 million to JCL on July 1, 2007.
b) Installments of MYR. 0.86 million (including interest) are receivable annually, in arrears, on June 30.
c) The effective interest rate is 11.0437%.
Relevant exchange rates are:
Date Spot rates Average rates
1 July 2007 MYR 1: Rs 10 -
30 June 2008 MYR 1: Rs 7.5 -
30 June 2009 MYR 1: Rs 10.5 -
1 July 2007 - 30 June 2008 - MYR 1: Rs 8
1 July 2008 - 30 June 2009 - MYR 1: Rs 10

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Required
Show the journal entries required to record the above loan transaction in MSL's accounting records for the
years ended 30 June 2008 & 30 June 2009.

Question-21 [Accounting year end and loan year end are different]
On 1st July 2018, Mani & Co. Limited (functional currency Pak Rupees (Rs.)) obtained a loan of $ 5,000
from Mojo Limited (an American company whose currency is USD $).
a) Loan is repayable in 4 equal installments of $ 1,500 each (including interest) payable annually in
arrears on 30th June.
b) Effective interest rate is 7.714%.
Relevant exchange rates are:
Date Spot rates Average rates
1 July 2018 $ 1: Rs 100 -
31 December 2018 $ 1: Rs 95 -
30 June 2019 $ 1: Rs 102
31 December 2019 $ 1: Rs 110 -
1 July 2018 - 31 December 2018 - $ 1: Rs 97.50
1 January 2019 - 30 June 2019 - $ 1: Rs 100
1 July 2019 - 31 December 2019 - $ 1: Rs 105
Required
Show the journal entries required to record the above loan transaction in Mani and Co. accounting records
for the years ended 31 December 2018 & 31 December 2019.

Question-22
Majboor Ltd, a company incorporated in Pakistan whose functional currency is Rupees (Rs.), obtained a
Loan from Gracious Bank of America on 01 January 2017. Details of the loan agreement with bank are as
follows:
Principal $ 5,000
Interest payable annually in arrears 5%
Principal amount of loan is repayable in 5 equal annual installments starting from 31 December 2017.
Relevant exchange rates are:
Date/ Period Spot rates Average rates
1 January 2017 US $ 1: Rs 150 -
31 December 2017 US $ 1: Rs 145 -
31 December 2018 US $ 1: Rs 160 -
1 January 2017 - 31 December 2017 - US $ 1: Rs 148
1 January 2018 - 31 December 2018 - US $ 1: Rs 155
Required:
Show the journal entries required to record the above loan transaction in Majboor Ltd's accounting
records for the years ended 31 December 2017 and 31 December 2018.

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Question-23
Green Limited (GL), a company incorporated in Pakistan whose functional currency is Pak Rupees (Rs.),
obtained five year long term loan from International Support Fund (ISF) in US Dollars ($) . The terms of
the loan were as follows:
ISF transferred US $5,000 on 1 January 2017. The interest rate on the loan was 6. 4022% per annum.
GL is required to make repayments of US $ 1,200 inclusive of principal and interest annually, with the
first payment falling due on 31 December 2017
Relevant exchange rates are:
Date Spot rates Average rates
1 January 2017 US $ 1: Rs 100 -
31 December 2017 US $ 1: Rs 110 -
31 December 2018 US $ 1: Rs 105 -
1 January 2017 - 31 December 2017 - US $ 1: Rs 107.50
1 January 2018 - 31 December 2018 - US $ 1: Rs 102.50
Required:
Show the journal entries required to record the above loan transaction in Green Limited's accounting
records for the years ended 31 December 2017 and 31 December 2018.

Question-24
Tours Limited, a Pakistani tourist company, bought an engine to use in the construction of a train. The
engine was imported from a specialist in Great Britain for a total of GBP 20,000. The engine was ordered
to the British specialist on 25 March 2015, were shipped on 15 July 2015 and arrived in Pakistan on 25
July 2015. The engine was shipped free on board (FOB).
The train is to be used to transport tourists. The train was completed on 31 July 2015 (at a further cost of
Rs.55,000), were available for use on 1 September 2015 and were first brought into use on 1 October
2015. The train has a residual value of Rs. 30,000 and a useful life of 10 years.
Tours Limited paid the British specialist on 31 August 2015.
The relevant exchange rates between Rupees and GBP were as follows:
Date Spot Rate
Pak Rupees: GB Pound
25 March 2015 9.00:1
15 July 2015 9.25:1
25 July 2015 9.60:1
31 August 2015 9.90:1
Required:
Show all related journal entries in the books of Tours Limited for the year ended 31 December 2015.

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Question-25
Spyware Limited is a Pakistani company involved in private investigation and the supply of related
products.
Spyware Limited imported a large batch of advanced monitoring devices from an American company for
a total invoice price of USD 100,000. The advanced monitoring devices were ordered from the American
company on 25 March 2015, were shipped on 15 July 2015 (cost, insurance and freight basis: CIF) and
arrived in Pakistan on 25 July 2015.
The advanced monitoring devices are to be sold via one of its retail outlets. On 31 December 2015,
80% of the advanced monitoring devices had been sold (at a mark-up of 20% on cost).
Spyware Limited paid the American company on 2 February 2016.
Spyware Limited has a 31 December year end.
The relevant exchange rates were as follows:
Date Spot Rate
Pak Rupees: US Dollar
25 March 2015 7.00:1
15 July 2015 7.20:1
25 July 2015 7.60:1
31 December 2015 7.10:1
2 February 2016 6.90:1
Required:
Show all related journal entries in the books of Spyware Limited for its years ended 31 December 2015.

Question-26
On 1st April 2019, X & Co. Limited (functional currency Pak Rupees (Rs.)) provided a loan of $ 1,902 to
Nike (an American company whose currency is USD $).
a) Loan is receivable in 4 equal installments of $ 600 each (including interest) payable annually in
arrears on 31st March.
b) Effective interest rate is 10% per annum.
Relevant exchange rates are:
Date Spot rates Average rates
1 April 2019 1 Rs : $ 0.45 -
31 December 2019 1 Rs : $ 0.48 -
31 March 2020 1 Rs : $ 0.52
31 December 2020 1 Rs : $ 0.38 -
1 April 2019 - 31 December 2019 - 1 Rs : $ 0.47
1 January 2020 - 31 March 2020 - 1 Rs : $ 0.51
1 April 2020 - 31 December 2020 - 1 Rs : $ 0.40
Required
Show the journal entries required to record the above loan transaction in X and Co. accounting records for
the years ended 31 December 2019 & 31 December 2020.

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SOLUTIONS
Answer-1
Date Particulars Dr. Cr.
Rupees (Rs.)
1 April Purchases 60,480
Payables (540 x 112) 60,480
(Recording of Purchases )
31 May Payables 60,480
Exchange loss (bal.) 5,940
Cash (540 x 123) 66,420
(Recording of Exchange loss on Settlement of Payables)

Answer-2
Date Particulars Dr. Cr.
Rupees (Rs.)
1 April Purchases 28,750
Payables (230 x 125) 28,750
(Recording of Purchases)
30 June Exchange loss 2,070
Payables (230 x 134 = 30,820 – 28,750) 2,070
(Retranslation of Payables at reporting date )
31 July Payables (28,750 + 2,070) 30,820
Exchange Gain (Bal.) 690
Cash (230 x 131) 30,130
(Recording of Exchange gain at Settlement Date )
Note:
At Reporting date leave closing inventory at the original cost if still in inventory, as inventory is a non-
monetary item

Answer-3
Date Particulars Dr. Cr.
Rupees (Rs.)
25/10 /01 Purchases 3,489
Payables (286 x 12.2) 3,489
(Recording of Purchases)
31/12/01 Payables 801
Exchange Gain (286 x 9.4 = 2,688 – 3,489) 801
(Retranslation of Payables at reporting date )
15/02/02 Payables (3,489 - 801) 2,688
Exchange loss (bal.) 1,087
Cash (286 x 13.2) 3,775
(Recording of Exchange loss on Settlement of Payables)

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Answer-4
Date Particulars Dr. Cr.
Rupees (Rs.)
28/03/03 Debtor 49,000
Sale (350 x 140) 49,000
(Recording of Revenue)
01/04/03 Bank (350 x 148 ) 51,800
Exchange Gain (bal.) 2,800
Receivables 49,000
(Recording of Exchange gain at time of settlement)

Answer-5
Date Particulars Dr. Cr.
Rupees (Rs.)
12/12/11 Debtor 168,300
Sale (935 x 180) 168,300
(Recording of Sales)
31/12/11 Exchange Loss 9,350
Debtor (935 x 170 = 158,950 – 168,300) 9,350
(Recording of Exchange loss)
15/06/12 Cash (935 x 184 ) 172,040
Exchange Gain (bal.) 13,090
Debtor (168,300 – 9,350) 158,950
(Recording of Exchange loss at time of settlement)

Answer-6
Date Particulars Dr. Cr.
Rupees (Rs.)
25/06/19 Debtor 100,000
Sale (800 x 125) 100,000
(Recording of Sales)
30/06/19 Exchange Loss 9,600
Debtor (800 x 113 = 90,400 – 100,000) 9,600
(Recording of Exchange loss at translation date)
31/07/19 Cash (800 x 30% = 240 x 128) 30,720
Exchange Gain (bal.) 3,600
Debtor (800 x 30% = 240 x 113) 27,120
(Recording of Exchange Gain at Settlement)
31/08/19 Cash (800 x 70% = 560 x 130) 72,800
Exchange Gain (bal.) 9,520
Debtor (800 x 70% = 560 x 113) 63,280
(Recording of Exchange Gain at Settlement)

393
CHAPTER-5 IAS 21: Foreign Currency Transactions

Answer-7
Date Particulars Dr. Cr.
Rupees (Rs.)
01/12/12 Fixed Asset 161,500
Payables (950 x 170) 161,500
(Recording of Purchase of Fixed Asset)
31/12/12 Exchange Loss 11,400
Payables (950 x 182 = 172,900 – 161,500) 11,400
(Retranslation of Payables)
31/12/12 Depreciation (161,500/8) 20,188
Accumulated Depreciation 20,188
(Recording of Exchange Gain at Settlement)
12/01/13 Payables (161,500 + 11,400) 172,900
Exchange Gain (bal.) 6,650
Cash (950 x 175) 166,250
(Recording of Exchange Gain at Settlement)

Answer-8
a)
Date Particulars Dr. Cr.
1.07.18 Plant (30,000 x 1.32) 39,600
Payable 39,600
(Purchase of Plant)
1.09.18 Payable (30,000 x 60% = 18,000 x 1.32) 23,760
Exchange Gain (bal.) 1,260
Cash (30,000 x 60% = 18,000 x 1.25) 22,500
(1st Installment paid)
31.12.18 Exchange loss 720
Payable 720
[{30,000 x 40%=12,000 x 1.32} 15,840 – 16,560 {12,000 x 1.38}]
(Year-end translation)
31.12.18 Depreciation (39,600/10 x 6/12) 1,980
Accumulated Depreciation 1,980
(Depreciation for the year)
1.03.19 Payable (12,000 x 1.38) 16,560
Exchange Gain (bal.) 1,200
Cash (12,000 x 1.28) 15,360
st
(2 Installment paid)
31.12.19 Depreciation (39,600/10) 3,960
Accumulated Depreciation 3,960
(Depreciation for the year)
31.12.19 Impairment loss (33,660(W-1) – 25,000) 8,660
Accumulated Impairment 8,660
(Recording of Impairment loss)

(W-1)
WDV (39,600 – 1,980 – 3,960) 33,660
Recoverable Amount 25,000

394
CHAPTER-5 IAS 21: Foreign Currency Transactions

Answer-9
Date Particulars Dr. Cr.
Rupees (Rs.)
1 April Purchases 30,000
Payables (54,000 / 1.8) 30,000
(Recording of Purchases under functional currency)
31 May Payables 30,000
Exchange loss (bal.) 857
Cash (54,000 / 1.75) 30,857
(Recording of Exchange loss on Settlement of Payables)

Answer-10
Date Particulars Dr. Cr.
Dollars ($)
1 April Purchases 30,000
Payables (54,000 / 1.8) 30,000
(Recording of Purchases)
30 June Exchange loss (54,000 / 1.7 = 31,765 - 30,000) 1,765
Payables 1,765
(Retranslation of Payables at reporting date )

Answer-11
The exchange loss on 31.12.18 is Rs. 490,000.
Date Particulars Dr. Cr.
Rupees (Rs.)
30.6.18 Bank Deposit (90,000 x 100) 9,000,000
Cash 9,000,000
(Cash Deposited)
31.9.18 Bank Deposit (10,000 x 99) 990,000
Cash 990,000
(Cash Deposited)
31.12.18 Exchange loss 490,000
Bank Deposit 490,000
(Retranslation of Bank Deposit at reporting date)

Dr. Bank Deposit Cr.

30/06/18 Cash ($90,000 x Rs.100) 9,000,000
30/09/18 Cash ($10,000 x Rs.99) 990,000 31/12/18 Exchange Loss (Bal.) 490,000
31/12/18 c/d ($100,000 x Rs.95) 9,500,000

Answer-12
Date Particulars Dr. Cr.
Rupees (Rs.)
30.6.18 Cash (90,000 x 100) 9,000,000
Bank loan 9,000,000
(Loan Obtained)

395
CHAPTER-5 IAS 21: Foreign Currency Transactions

31.12.18 Interest Expense 990,000

Loan 990,000
(Recording of interest)
31.12.18 Bank loan 490,000
Exchange Gain 490,000
(Retranslation at reporting Date)

Balance Sheet (Extracts only)

As at 31 December 18
Rupees
2018
Non-current liability
Loan Payable(9,000,000 – 450,000) 8,550,000
Current liability
Interest Payable 950,000

Profit & Loss (Extracts only)

For the year ended 31 December 18
Rupees
2018
Expenses:
Interest expense 990,000
Other Income
Exchange gain (40,000 + 450,000) 490,000

(W-1) Exchange Gain/Loss on translation

Dr. Loan Cr.
31/12/18 Exchange Gain (Bal.) 490,000 30/06/18 Cash (90,000 x Rs.100) 9,000,000
31/12/18 c/d (100,000 x Rs.95) 9,500,000 31/12/18 Interest Exp. (10,000 x Rs.99) 990,000

Answer-13
Ali Limited (AL)
Statement of Comprehensive income (Extracts )
For the year ended 31 December 2017
Rs.
Sale Not given

Purchases 187,500
Closing Stock [187,500 x 25%] (46,875)
Cost of Sales (140,625)
Other Income
Foreign Exchange Gain 29,605

396
CHAPTER-5 IAS 21: Foreign Currency Transactions

Ali Limited (AL)

Statement of Financial Position (Extracts)
As on 31 December 2017
Rs.
Assets
Current Assets
Stock 46,875
Equity and liabilities
Current Liabilities
Payables 157,895
(Entries for understanding purpose)
Date Description Dr. Cr.
19-10-17 Purchases 187,500
Payables (1,500/ .008) 187,500

31-12-17 Payables 29,605

Exchange Gain 29,605
[(1,500 / 0.0095) = 157,895 vs 187,500]

Answer-14
Date Particulars Dr. Cr.
Dollars ($)
a)
Receivables 307,692
Revenue (200,000 / 0.65) 307,692
(Recording of Revenue)
b)
Bank (200,000 / 0.70 ) 285,714
Exchange loss (bal.) 21,978
Receivables 307,692
(Recording of Exchange loss at time of settlement of receivables)
c)
Exchange loss 41,025
Receivables (200,000/0.75 = 266,667 – 307,692) 41,025
(Recording of Exchange loss at reporting date)

Answer-15
a) Acer Limited (AL)
Statement of Financial Position (Extracts only)
As at 31 December
Rs. in ‘000’
2009 2008 2007
Assets
Non-current assets
Property Plant and Equipment 700 540 760

Equity & Liabilities

Equity
Revaluation Surplus 320 - -

397
CHAPTER-5 IAS 21: Foreign Currency Transactions

Acer Limited (AL)

Statement of Comprehensive Income (Extracts only)
For the year ended 31 December
Rs. in ‘000’
2009 2008 2007
Expenses:
Depreciation (350) (180) (190)
Revaluation and Exchange loss - (40) -
Revaluation Loss reversal 30 - -

Other Comprehensive Income

Revaluation and Exchange gain/(loss) 480 - -

(W-1) Calculation of revaluation surplus and depreciation on plant

Date Description Plant R. Surplus SOCI(P/L)
-----------Rs. in ‘000’-----------
01/01/07 Cost (HK$ 50 x Rs.19) 950
31/12/07 Depreciation (950/5) (190)
31/12/07 WDV 760
01/01/08 Revaluation loss (bal.) (40) (40)
01/01/08 Revalued amount (HK$ 40 x Rs.18) 720 (40)
31/12/08 Depreciation (720/4) : (40/4) (180) 10
31/12/08 WDV 540 (30)
01/01/09 Revaluation surplus (bal.) 510 480 30
01/01/09 Revalued amount (HK$ 60 x Rs.17.5) 1,050 480 -
31/12/09 Depreciation (1,050/3):( 480/3) (350) (160)
31/12/09 WDV 700 320

398
CHAPTER-5 IAS 21: Foreign Currency Transactions

b)
Journal entries
Rs. in ‘000’
Date Particulars Dr. Cr.
01/01/07 Plant 950
Bank 950
(Purchase of plant)
31/12/07 Depreciation expense 190
Accumulated depreciation 190
(Recording of depreciation on plant)
01/01/08 Accumulated depreciation 190
Plant 190
(Transfer of accumulated depreciation to plant)
01/01/08 P/L (Revaluation loss) 40
Plant 40
(Recording of revaluation exchange difference)
31/12/08 Depreciation expense 180
Accumulated depreciation 180
(Recording of depreciation on plant)
01/01/09 Accumulated depreciation 180
Plant 180
(Transfer of accumulated depreciation to plant)
01/01/09 Plant 510
Revaluation surplus- OCI 480
P/L 30
(Recording of revaluation exchange difference)
31/12/09 Depreciation expense 350
Accumulated depreciation 350
(Recording of depreciation on plant)
31/12/09 Revaluation Surplus 160
Retained earnings 160
(transfer of remaining revaluation surplus to retained earnings)

399
CHAPTER-5 IAS 21: Foreign Currency Transactions

Answer-16
Gwadar limited (GL)
Statement of Financial Position (Extracts only)
As at 31 December 2003
Rs. in million
2005 2004 2003
Assets
Non-current assets
Property Plant and Equipment 1,080 2,887.5 3,200

Equity & Liabilities

Equity
Revaluation Surplus - 487.5 -

Gwadar limited (GL)

Statement of Comprehensive Income (Extracts only)
For the year ended 31 December
Rs. in million
2005 2004 2003
Expenses:
Depreciation 540 962.5 800
Revaluation and Exchange loss (780) - -

Other Comprehensive Income

Revaluation and Exchange gain/(loss) (487.5) 650 -

(W-1) Calculation of revaluation surplus and depreciation on plant

Date Description Plant R. Surplus SOCI(P/L)
-----------Rs. in million-----------
01/01/03 Cost ( R 400 x Rs.10) 4,000
31/12/03 Depreciation (4,000/5) (800)
31/12/03 WDV 3,200
01/01/04 Revaluation surplus (bal.) 650 650
01/01/04 Revalued amount (R 350 x Rs.11) 3,850 650
31/12/04 Depreciation (3,850/4) : (650/4) (962.5) (162.5)
31/12/04 WDV 2887.5 487.5
01/01/05 Revaluation loss (bal.) (1,267.5) (487.5) (780)
01/01/05 Revalued amount (R 180 x Rs. 9) 1,620 - (780)
31/12/05 Depreciation (1,620/3):( 780/3) (540) 260
31/12/05 WDV 1,080 (520)

400
CHAPTER-5 IAS 21: Foreign Currency Transactions

Answer-17
a)
Date Particulars Dr. Cr.
1.07.18 Plant (30,000 x 1.32) 39,600
Payable 39,600
(Purchase of Plant)
31.12.18 Exchange loss 1,800
Payable [(30,000 x 1.38)= 41,400 - 39,600] 1,800
(Year-end translation)
31.12.18 Depreciation (39,600/10 x 6/12) 1,980
Accumulated Depreciation 1,980
(Depreciation for the year)
1.03.19 Payable (39,600 + 1,800) 41,400
Exchange Gain (bal.) 3,000
Cash (30,000 x 1.28) 38,400
(Settlement of payable)
31.12.19 Depreciation (39,600/10) 3,960
Accumulated Depreciation 3,960
(Depreciation for the year)
31.12.19 Impairment loss (33,660 (W-1) - 25,000) 8,660
Accumulated Impairment 8,660
(Recording of Impairment loss)
(W-1)
WDV (39,600 - 1,980 - 3,960) 33,660
Recoverable Amount 25,000
b)
Toyota Limited
Statement of Financial Position (Extracts only)
As at year ended 2019

2019 2018
Assets
Non-current assets
Plant 25,000 37,620
2018: (39,600 - 1,980)
2019: (37,620 - 3,960 - 8,660)
Current liability
Payables (39,600 + 1,800) - 41,400
Toyota Limited
Statement of Profit and Loss (Extracts only)
For the year ended 2019
2019 2018
Expenses
Depreciation 3,960 1,980
Impairment loss 8,660 -
Exchange loss - 1,800
Other income
Exchange gain 3,000 -

401
CHAPTER-5 IAS 21: Foreign Currency Transactions

Answer-18
Date Particulars Dr. Cr.
a) Rs. Rs.
19-03-19 Intangible (200,000 Din. / 0.65) 307,692
Accounts payable 307,692
(Recording of Purchase of an intangible)
25-06-19 Accounts payable 307,692
Exchange loss (bal.) 92,308
Bank (200,000 Din./ 0.5) 400,000
(Recording of Payment of accounts Payable)
b)
27-02-19 Accounts receivable (400,000 Baht / 7) 57,143
Sales 57,143
(Recording of Revenue recognition)
27-02-19 Cost of sales 40,000
Inventory 40,000
(Recording of Cost recognition)
25-05-19 Bank (400,000 Baht /6.7) 59,701
Accounts receivable 57,143
Exchange Gain (bal.) 2,558
(Receipt of accounts receivable)
c)
2-04-19 Accounts receivable (52,694 Rand / 0.096) 548,896
Sales 548,896
(Recording of Revenue )
2-04-19 Cost of sales 200,000
Inventory 200,000
(Recording of Cost)
30-06-19 Exchange loss 21,956
Accounts receivable 21,956
(52,694 /0.1 = 526,940 - 548,896)
(Recording at Year end closing rate)
7-08-19* Bank (52,694 / 0.088 ) 598,795
Exchange gain (bal.) 71,855
Accounts receivable (548,896 - 21,956) 526,940
(Recording of Receipt of accounts receivable)
*This entry is not a part of a Question requirement.
d)
25-05-19 Loan receivable (600,000 Ringgit / 1.5) 400,000
Bank 400,000
(Recording of Loan receivable)
30-06-19 Exchange loss 100,000
Loan receivable
(600,000 Ringgit / 2.0 = 300,000 - 400,000) 100,000
(Recording at Year-end closing rate)

402
CHAPTER-5 IAS 21: Foreign Currency Transactions

Answer-19
Inter-city Travel Limited (ITL)
Journal entries
Date Particulars Dr. Cr.
Rupees (Rs.)
01/01/17 Bank 200,000
Loan (W-2) 200,000
(Loan received)
31/12/17 Interest Expense (W-2) 21,500
Loan 21,500
(Recording of interest expense)
31/12/17 Loan (W-2) 22,000
Bank 22,000
(Interest Paid)
31/12/17 Exchange Loss (W-2) 20,500
Loan 20,500
(Exchange loss on retranslation of remaining loan using closing rate)
31/12/18 Interest Expense (W-2) 20,500
Loan 20,500
(Recording of interest expense)
31/12/18 Loan (W-2) 21,000
Bank 21,000
(Interest Paid)
31/12/18 Loan 9,500
Exchange Gain (W-2) 9,500
(Exchange gain on retranslation of remaining loan using closing rate)
31/12/19 Interest Expense (W-2) 22,000
Loan 22,000
(Recording of interest expense)
31/12/19 Loan (W-2) 264,000
Bank 264,000
(Interest and loan Paid)
31/12/19 Exchange Loss (W-2) 32,000
Loan 32,000
(Exchange loss on retranslation of remaining loan using rate on
settlement date)

(W-1) Amortisation Schedule in US Dollars ($)

Date Installment Principal Interest Balance

01/01/17 2,000
31/12/17 200 - 200 2,000
31/12/18 200 - 200 2,000
31/12/19 2,200 2,000 200 -

403
CHAPTER-5 IAS 21: Foreign Currency Transactions

(W-2) Exchange Gain/Loss on translation

Dr. Loan Cr.
31/12/17 Bank ($200 x Rs.110) 22,000 01/01/17 Bank ($2,000 x Rs.100) 200,000
31/12/17 Interest Exp. ($200 x Rs.107.5) 21,500
31/12/17 Exchange Loss (Bal.) 20,500
31/12/17 c/d ($2,000 x Rs.110) 220,000
31/12/18 Bank ($200 x 105) 21,000 01/01/18 b/d 220,000
31/12/18 Interest Exp. ($200 x Rs.102.5) 20,500
31/12/18 Exchange gain (Bal.) 9,500
31/12/18 c/d ($2,000 x Rs.105) 210,000
31/12/19 Bank ($2,200 x Rs.120) 264,000 01/01/19 b/d 210,000
31/12/19 Interest Exp. ($200 x Rs.110) 22,000
31/12/19 Exchange Loss (Bal.) 32,000
31/12/19 c/d -

Answer-20

Mahmood & Sons Limited (MSL)

Journal entries
Date Particulars Dr. Cr.
Rupees (Rs.)
01/07/07 Loan receivable (W-2) 21,000,000
Bank 21,000,000
(Loan given)
30/06/08 Loan receivable (W-2) 1,855,344
Interest income 1,855,344
(Recording of interest income)
30/06/08 Bank (W-2) 6,450,000
Loan receivable 6,450,000
(1st installment received)
30/06/08 Exchange loss 5,365,959
Loan receivable (W-2) 5,365,959
(Exchange loss on retranslation of remaining loan using closing rate)
30/06/09 Loan receivable (W-2) 1,625,540
Interest income 1,625,540
(Recording of interest income)
30/06/09 Bank (W-2) 9,030,000
Loan receivable 9,030,000
(2nd installment received)
30/06/09 Loan receivable 4,497,031
Exchange gain (W-2) 4,497,031
(Exchange loss on retranslation of remaining loan using closing rate)

(W-1) Amortisation Schedule in MYR

Date Installment Principal Interest Balance
@11.0437%
1/7/07 2,100,000
30/6/08 860,000 628,082 231,918 1,471,918
30/6/09 860,000 697,446 162,554 774,472
30/6/10 860,000 774,470 85,530 2

404
CHAPTER-5 IAS 21: Foreign Currency Transactions

(W-2) Exchange Gain/Loss on translation

Dr. Loan Receivable Cr.
01/07/07 Bank 21,000,000
(MYR 2,100,000 x Rs.10)
30/06/08 Interest 1,855,344 30/06/08 Bank 6,450,000
(MYR 231,918 x Rs.8) (MYR860,000 x Rs.7.5)
30/06/08 Exchange Loss (Bal.) 5,365,959
30/06/08 c/d 11,039,385
(MYR 1,471,918 x Rs.7.5)
01/07/08 b/d 11,039,385 30/06/09 Bank 9,030,000
(MYR 860,000 x Rs.10.5)
30/06/09 Interest 1,625,540
(MYR 162,554 x Rs.10)
30/06/09 Exchange Gain (Bal.) 4,497,031 30/06/09 c/d 8,131,956
(MYR 774,472 x Rs.10.5)

Answer-21
Mani & Co. Limited
Journal entries
Date Particulars Dr. Cr.
Rupees (Rs.)
01/07/18 Bank 500,000
Loan (W-2) 500,000
(Loan received)
31/12/18 Interest Expense (W-2) 18,818
Loan 18,818
(Recording of interest expense for 6 months)
31/12/18 Loan 25,483
Exchange Gain (W-2) 25,483
(Exchange Gain on retranslation of remaining loan using closing rate)
30/06/19 Interest Expense (W-2) 19,300
Loan 19,300
(Recording of interest expense)
30/06/19 Loan (W-2) 153,000
Bank 153,000
(1st installment Paid)
31/12/19 Interest Expense (W-2) 15,750
Loan 15,750
(Recording of interest expense)
31/12/19 Exchange Loss (W-2) 68,575
Loan 68,575
(Exchange loss on retranslation of remaining loan using closing rate)
(W-1) Amortisation Schedule in US Dollars ($)

Date Installment Principal Interest Balance

@7.714%
1/7/18 5,000
30/6/19 1,500 1,114 386 3,886
30/6/20 1,500 1,200 300 2,686

405
CHAPTER-5 IAS 21: Foreign Currency Transactions

(W-2) Exchange Gain/Loss on translation

Dr. Loan Cr.
01/07/18 Bank ($5,000 x Rs.100) 500,000
Exchange gain (Bal.) 25,483 31/12/18 Interest Exp. 18,818
[(386 x 6/12= $193 xRs.97.5)
31/12/18 c/d ($5,193 x Rs.95) 493,335
30/06/19 Bank ($1,500 x Rs.102) 153,000 01/01/19 b/d 493,335
30/06/19 Interest Exp. 19,300
[(386 x 6/12= $193 xRs.100)
31/12/19 Interest Exp. 15,750
[(300 x 6/12= $150 xRs.105)
Exchange loss (Bal.) 68,575
31/12/19 c/d ($4,036 x Rs.110) 443,960

For understanding of students balance sheet of 31 December 2018 is produced below:

5,193
* 5,193

Current Interest
Non-current liability
Liability Payable

1,114 3,886 193 = 5,193

(386 x 6/12)
  

95 95 95

= 105,830 = 369,170 = 18,335

Balance sheet extracts

As at 31 December 2018 Rs.
Liabilities
Non-current liabilities
Loan 369,170
Current liabilities
Current portion 105,830
Interest payable 18,335

406
CHAPTER-5 IAS 21: Foreign Currency Transactions

Answer-22
Majboor Limited
Journal entries
Date Particulars Dr. Cr.
Rupees (Rs.)
01/01/17 Bank 750,000
Loan (W-2) 750,000
(Loan received)
31/12/17 Interest Expense (W-2) 37,000
Loan 37,000
(Recording of interest expense)
31/12/17 Loan (W-2) 181,250
Bank 181,250
(1st installment Paid)
31/12/17 Loan 25,750
Exchange gain (W-2) 25,750
(Exchange Gain on retranslation of remaining loan using closing rate)
31/12/18 Interest Expense (W-2) 31,000
Loan 31,000
(Recording of interest expense)
31/12/18 Loan (W-2) 192,000
Bank 192,000
nd
(2 installment Paid)
31/12/18 Exchange loss (W-2) 61,000
Loan 61,000
( (Exchange loss on retranslation of remaining loan using closing rate)

(W-1) Amortisation Schedule in US Dollars ($)

Date Installment Principal Interest Balance
01/01/17 5,000
(1,000 + 250) 31/12/17 1,250 1,000 250 4,000
(1,000 + 200) 31/12/18 1,200 1,000 200 3,000

(W-2) Exchange Gain/Loss on translation

Dr. Loan Cr.
31/12/17 Bank ($1,250 x Rs.145) 181,250 01/01/17 Bank ($5,000 x Rs.150) 750,000
Exchange gain (Bal.) 25,750 31/12/17 Interest Exp. ($250 x Rs.148) 37,000
31/12/17 c/d ($4,000 x Rs.145) 580,000
31/12/18 Bank ($1,200 x Rs.160) 192,000 01/01/18 b/d 580,000
31/12/18 Interest Exp. ($200 x Rs.155) 31,000
Exchange loss (Bal.) 61,000
31/12/18 c/d ($3,000 x Rs.160) 480,000

407
CHAPTER-5 IAS 21: Foreign Currency Transactions

Answer-23
Green Limited (GL)
Journal entries
Date Particulars Dr. Cr.
Rupees (Rs.)
01/01/17 Bank 500,000
Loan (W-2) 500,000
(Loan received)
31/12/17 Interest Expense (W-2) 34,400
Loan 34,400
(Recording of interest expense)
31/12/17 Loan (W-2) 132,000
Bank 132,000
(1st installment Paid)
31/12/17 Exchange Loss (W-2) 50,800
Loan 50,800
(Translation of outstanding balance using closing rate resulting in
Exchange loss)
31/12/18 Interest Expense (W-2) 27,060
Loan 27,060
(Recording of interest expense)
31/12/18 Loan (W-2) 126,000
Bank 126,000
(2nd installment Paid)
31/12/18 Loan 19,940
Exchange Gain (W-2) 19,940
(Translation of outstanding balance using closing rate resulting in
Exchange gain)

(W-1) Amortisation Schedule in US Dollars ($)

Date Installment Principal Interest Balance
01/01/17 5,000
31/12/17 1,200 880 320 4,120
31/12/18 1,200 936 264 3,184
31/12/19 1,200 996 204 2,188
31/12/20 1,200 1,060 140 1,128
31/12/21 1,200 1,128 72 0

(W-2) Exchange Gain/Loss on translation

Dr. Loan Cr.
31/12/17 Bank ($1,200 x Rs.110) 132,000 01/01/17 Bank ($5,000 x Rs.100) 500,000
31/12/17 Interest Exp. 34,400
($320 x Rs.107.5)
31/12/17 c/d ($4,120 x Rs.110) 453,200 Exchange loss (Bal.) 50,800
31/12/18 Bank ($1,200 x Rs.105) 126,000 01/01/18 b/d 453,200
31/12/18 Interest Exp. 27,060
($264 x Rs.102.5)
Exchange gain (Bal.) 19,940
31/12/18 c/d ($3,184 x Rs.105) 334,320

408
CHAPTER-5 IAS 21: Foreign Currency Transactions

Answer-24
Tours Limited
Journal entries
Date Particulars Debit Credit
2015 Rupees (Rs.)
15 July Engine in transit 185,000
Payable to British specialist 185,000
(GBP 20,000  9.25)
25 July Train in progress 185,000
Engine in transit 185,000
31 July Train in progress 55,000
Bank 55,000
(Further costs incurred on construction) '
31 Aug. Payable 185,000
Foreign exchange loss (expense) (bal.) 13,000
Bank (20,000  9.90) 198,000
01 Sep. Train (PPE) 240,000
Train in progress 240,000
(Train is available for use)
31 Dec. Depreciation 7,000
Accumulated depreciation 7,000
Depreciation from date first available for use:
(240,000 – 30,000) /10 years  4/12)
Note:
 When goods are shipped on a FOB basis (free on board), the risks and rewards of ownership
transfer on the date that the goods are loaded onto the ship.
 In this case, it means that the transaction date is 15 July 20X5.
Answer-25
Spyware Limited
Date Journal entries Debit Credit
2015 Rupees (Rs.)
25 July Inventory 760,000
Creditor 760,000
(USD 100,000  7.60)
31 Dec Cost of sales (760,000  80%) 608,000
Inventory 608, 000

31 Dec Debtors/ Bank (608,000/100  120) 729,600

Sales 729,600
Revenue from sale of goods
31 Dec. Creditor 50,000
Foreign exchange gain (income) 50,000
(100,000  7.10 = 710,000 vs 760,000)
(Obligation reduced to 710,000 for 760,000)
Note:
When goods are shipped on a CIF basis (cost, insurance and freight), the risks and rewards of ownership
transfer on the date goods arrive safely at their destination.
In this case, it means that the transaction date is 25 July 2015.

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Answer-26
Journal Entries
Date Particulars Dr. Cr.
Rupees (Rs.)
1.04.19 Loan Receivable 4,227
Bank 4,227
(Loan provided)
31.12.19 Loan Receivable 304
Interest Income 304
(Recording of interest)
31.12.19 Exchange loss 271
Loan Receivable 271
(Year-end translation)
31.03.20 Loan Receivable 94
Interest Income 94
(Recording of interest)
31.03.20 Bank 1,154
Loan Receivable 1,154
(Receipt)
31.12.20 Loan Receivable 280
Interest Income 280
(Recording of interest)
31.12.20 Loan Receivable 744
Exchange Gain 744
(Year-end translation)

(W-1) Calculation of PV of LP
= [600 x [1- (1 + 0.1)-4]
0.1
= 1,902

(W-2) Lease Amortisation Schedule

$
Date Installment Principal Interest Balance
@ 10%
01/04/19 1,902
31/03/20 600 410 190 1,492
31/03/21 600 451 149 1,041
31/03/22 600 496 104 545
31/03/23 600 545 55 -

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CHAPTER-5 IAS 21: Foreign Currency Transactions

(W-3) Exchange Gain/Loss on translation

Dr. Loan Receivable Cr.
01/04/19 Bank 4,227
($1,902/0.45)
31/12/19 Interest income 304
($190 x 9/12) = $143/0.47
31/12/19 Exchange Loss (Bal.) 271
30/12/19 c/d ($2,045/0.48) 4,260
01/01/20 b/d ($2,045/0.48) 4,260
31/03/20 Interest income 94 31/03/20 Bank ($600/0.52) 1,154
($190 x 3/12) = $48/0.51
31/12/20 Interest income 280
($149 x 9/12) = $112/0.4
31/12/20 Exchange Gain (Bal.) 744 31/12/20 c/d ($1,605/0.38) 4,224

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CHAPTER-5 IAS 21: Foreign Currency Transactions

CHAPTER-5
IAS 21
ICAP PAST PAPER QUESTIONS
Question-1
Copper Limited (CL) entered into following transactions during the year ended 30 June 2019:
(i) On 1 October 2018, CL imported a machine from China for USD 250,000 against 60% advance
payment which was made on 1 July 2018. The remaining payment was made on 1 April 2019.

(ii) On 1 January 2019, CL sold goods to a Dubai based company for USD 40,000 on credit. CL
received 25% amount on 1 April 2019, however, the remaining amount is still outstanding.

Following exchange rates are available:

Date 1 Jul 2018 1 Oct 2018 1 Jan 2019 1 Apr 2019 30 Jun 2019 Average
1 USD Rs. 121 Rs. 124 Rs. 137 Rs. 140 Rs. 163 Rs. 135

Required:
Prepare journal entries in CL’s books to record the above transactions for the year ended 30 June 2019. (08)
(Autumn 2019, Q.1)

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SOLUTIONS

Answer-1
Journal entries
Date Particulars Dr. Cr.
Rs. in “000”
01/07/18 Advance 18,150
Cash [($250,000 x 60%) = $150,000 x Rs.121] 18,150
(Recording of advance for machine )
01/10/18 Machine (bal.) 30,550
Advance 18,150
Payable [($250,000 x 40%) = $100,000 x Rs.124] 12,400
(Recording of machine received )
01/01/19 Receivable 5,480
Revenue ($40,000 x Rs.137) 5,480
(Recording of Revenue)
01/04/19 Payable 12,400
Exchange Loss (bal.) 1,600
Cash ($100,000 x Rs.140) 14,000
(Recording of payment against payable)
01/04/19 Cash [($40,000 x 25%) = $10,000 x Rs.140] 1,400
Receivables ($10,000 x Rs. 137) 1,370
Exchange Gain (bal.) 30
(Recording of Exchange Gain at Settlement)
30/06/19 Receivables 780
Exchange Gain 780
[($40,000 x 75%) = $30,000 x (163 - 137)]
(Retranslation at reporting Date)

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CHAPTER-5 IAS 21: Foreign Currency Transactions

CHAPTER-5
IAS 21
ICAP QUESTION BANK
Question-1
DND Limited is a listed company, having its operations within Pakistan. During the year ended
December 31, 2016, the company contracted to purchase plants and machineries from a US Company.
The terms and conditions thereof, are given below:
(i) Total cost of contract = US$ 100,000.
(ii) Payment to be made in accordance with the following schedule:
Payment Dates Amount Payable
On signing the contract July 01, 2016 US$ 20,000
On shipment* September 30, 2016 US$ 50,000
After installation and test run January 31, 2017 US$ 30,000
*(risk and rewards of ownership are transferred on shipment)
The contract went through in accordance with the schedule and the company made all the
payments on time. The following exchange rates are available:
Dates Exchange Rates
July 1, 2016 US$ 1 = Rs. 60.50
September 30, 2016 US$ 1 = Rs. 61.00
December 31, 2016 US$ 1 = Rs. 61.20
January 31, 2017 US$ 1 = Rs. 61.50

Required:
Prepare journals to show how the above contract should be accounted for under IAS 21.

Question-2
Orlando is an entity whose functional currency is the PKR. It prepares its financial statements to 30 June.
1. The following transactions took place on 21 May 2014 when spot exchange rate was € 1 = Rs. 190.
o Goods were sold to Koln, a customer in Germany, for €96,000.
o A specialised piece of machinery was bought from Frankfurt, a German supplier. The
invoice for the machinery is for €1,000,000.
2. The company receives €96,000 from Koln on 12 June 2014.
3. At 30 June Year it still owns the machinery purchased from Frankfurt. No depreciation has been
charged on the asset for the current period to 30 June 2014.
4. The liability for the machine is settled on 31 July 2014.
5. Relevant PKR/€ exchange rates are:
12 June 2014 € 1 = Rs. 185
30 June 2014 € 1 = Rs. 195
31 July 2014 € 1 = Rs. 190

Required:
Show the effect on profit or loss of these transactions for years ending 30 June 2014 and 2015?

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Question-3
MZA Limited a dollar based entity, was involved in the following transactions in foreign currencies
during the year ended December 31, 2018.
a) MZA Limited bought equipment for 130,000 Dinars on March 04, 2018 and paid for on August 25,
2018.
b) On February 27 2018 MZA Limited sold goods which had cost $46,000 for 476,000 Krams to a
company whose currency was Krams. The proceeds were received on May 25, 2018.
c) On September 02, 2018 MZA Limited sold goods which cost $17,000 for 53,376 Sarils to a
company whose currency was Sarils. The amount was outstanding at December 31, 2018 but the
proceeds were received in Sarils on February 07, 2019 when the exchange rate was S 2.306=$1.
d) MZA Limited borrowed 426,000 Rolands on May 25, 2018 and is repayable in two years time.
Exchange rates relevant to the above transactions to $1 are given below:
Date Rolands Dinars Krams Saril
27-Feb-18 - - 7.00 -
4-Mar-18 - 0.650 - -
25-May-18 1.500 - 6.700 -
25-Aug-18 - 0.500 - -
2-Sep-18 - - - 2.224
31-Dec-18 1.800 0.540 7.500 2.250

Required:
Prepare Journal entries for the year ended 31 December 2018.

Question-4
Kangaroo Limited (KL), a Pakistan based company, is preparing its financial statements for the year
ended 31 December 2017. Following transactions were carried out during the year.
Foreign currency transactions:
1. KL purchased an investment property in United States for USD 2.6 million. 10% advance payment
was made on 1 May 2017 and 70% payment was made on 1 July 2017 on transfer of title and
possession of the property. The remaining amount was paid on 1 August 2017.
2. On 1 September 2017, KL rented out this property at annual rent of USD 0.24 million for one year
and received full amount in advance on the same date.
3. KL uses fair value model for its investment property. On 31 December 2017, an independent valuer
determined that fair value of the property was USD 2.5 million.

Following spot exchange rates are available:

Date 1-May-2017 1-Jul-2017 1-Aug-2017 1-Sept-2017 31-Dec-2017
USD 1 Rs. 100 Rs. 105 Rs. 108 Rs. 110 Rs. 116

Required:
a) Prepare balance sheet and profit and loss Extracts for the year ended 31 December 2017.
b) Prepare Journal entries for the year ended 31 December 2017.

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SOLUTIONS
Answer-1
a) Journal entries
Rs.’000’
Date Particulars Dr. Cr.
01/07/16 Advance to supplier 1,210
Cash ($ 20,000 x Rs. 60.5) 1,210
(Recording of Advance Paid to Supplier)
30/09/16 CWIP (bal.) 6,090
Advance 1,210
Cash ($ 50,000 x Rs. 61) 3,050
Payable ($ 30,000 x Rs. 61) 1,830
(Recording of Asset received on delivery)
31/12/16 Exchange Loss 6
Payable to supplier ($ 30,000 x Rs. 61.2 - 1,830,000) 6
(Recording of exchange loss due to year end translation)
31/01/17 Property plant and equipment 6,090
CWIP 6,090
(Transfer of CWIP to PPE)
31/01/17 Payable to supplier (1,830 + 6) 1,836
Exchange Loss (bal.) 9
Cash ($ 30,000 x Rs. 61.5) 1,845
(Recording of exchange loss on Settlement)

For Understanding of Students

DND Limited
Statement of Comprehensive Income (Extracts)
For the year ended December 31st, 2016
Rs. in ‘000’
2016
Expenses:
Exchange loss 6

DND Limited
Statement of Financial Position (Extracts)
As on December 31st, 2016
Rs. in ‘000’
2016
Assets
Non-current assets
CWIP 6,090
Current liabilities
Payable to supplier (1,830 + 6) 1,836

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Answer-2

Orlando Limited
Statement of Profit and Loss (Extracts)
For the year ended
‘Rs.’ in ‘000’
30.06.15 30.06.14
Sales - 18,240
Other income:
Exchange Gain on settlement 5,000 -
Expenses:
Exchange loss on settlement - 480
Exchange loss on retranslation - 5,000
Depreciation (Life is not Given) - -

(Entries are for understanding purpose only)

Date Particulars Dr. Cr.
Year ended 30.06.2014 Rs.’000’ Rs.’000’
21/05/14 Debtor 18,240
Sales (€ 96,000 x Rs.190/€) 18,240
(Recording of Sales)
21/05/14 Property plant and equipment 190,000
Payable (€ 1,000,000 x Rs.190/€) 190,000
(Purchase of PPE)
12/06/14 Cash (€ 96,000 x Rs.185/€) 17,760
Exchange Loss (bal.) 480
Debtor (€ 96,000 x Rs.190/€) 18,240
(Recording of receipt resulting in exchange loss at the time of
settlement)
30/06/14 Exchange Loss 5,000
Payable [€ 1,000,000 x Rs.5/€ (195-190)] 5,000
(Translation of outstanding balance using closing rate resulting in
exchange loss)
Year ended 30.06.2015
31/07/14 Payable (190,000 + 5,000) 195,000
Exchange Gain (bal.) 5,000
Cash (€1,000,000 x Rs.190/€) 190,000
(Settlement of Payables)

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Answer-3
Date Particulars Dr. Cr.
a) $ in ‘000’ $ in ‘000’
4-03-18 Equipment (130,000 Din. / 0.65) 200
Accounts payable 200
(Recording of Purchase of equipment)
25-08-18 Accounts payable 200
Exchange loss (bal.) 60
Bank (130,000 Din./ 0.5) 260
(Recording of Payment of accounts Payable)
b)
27-02-18 Accounts receivable (476,000 Krams / 7) 68
Sales 68
(Recording of Revenue recognition)
27-02-18 Cost of sales 46
Inventory 46
(Recording of Cost recognition)
25-05-18 Bank (476,000 Krams /6.7) 71
Accounts receivable 68
Exchange Gain (bal.) 3
(Receipt of accounts receivable)
c)
2-09-18 Accounts receivable (53,376 Sarils / 2.224) 24
Sales 24
(Recording of Revenue )
2-09-18 Cost of sales 17
Inventory 17
(Recording of Cost)
31-12-18 Exchange loss 0.3
Accounts receivable (53,376 /2.250 = 23.7 - 24) 0.3
(Recording at Year end closing rate)
7-02-19* Bank (53,376 / 2.306 ) 23.1
Exchange loss (bal.) 0.6
Accounts receivable (24 – 0.3) 23.7
(Recording of Receipt of accounts receivable)
*This entry is not a part of a Question requirement.

d)
25-05-18 Bank (426,000 Rol. / 1.5) 284
Loan 284
(Recording of Receipt of loan)
31-12-18 Loan 47
Exchange Gain (426,000 Rol. / 1.8 = 237 - 284) 47
(Recording at Year-end closing rate)

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 CHAPTER-5 IAS 21: Foreign Currency Transactions

Answer-4
a)
Kangaroo Limited (KL)
Statement of Profit and Loss (Extracts)
For the year ended 31 December 2017
‘Rs.’ in ‘million’
Income:
Rental income 8.8
Fair value gain 18.3

Expenses:
Exchange loss 1.56

Kangaroo Limited (KL)

Statement of Financial Position (Extracts)
As on 31 December 2017
‘‘Rs.’ in ‘million’
Non-current Asset
Investment Property (W-1) 290

Current Liability
Unearned rental income (26.4 - 8.8) 17.6

b)
Payment Plan $
10% Advance on 01.May.2017 (2.6 x 10%) 0.26
70% Payment on 01.July.2017 (2.6 x 70%) 1.82
20% Payment on 01.August.2017 (2.6 x 20%) 0.52

Date Particulars Dr. Cr.

a) Rs. in ‘Million’
1.05.17 Advance 26
Cash (0.26 x 100) 26
(Recording of advance for Investment Property)
1.07.17 Investment Property (bal.) 271.7
Advance 26
Cash (1.82 x 105) 191.1
Payable (0.52 x 105) 54.6
(Recording of Investment Property)
1.08.17 Payable 54.6
Exchange loss (bal.) 1.56
Cash (0.52 x 108) 56.16
(Recording of remaining Payment for Investment Property)
1.09.17 Cash 26.4
Unearned rental income (0.24 x 110) 26.4
(Recording of advance)
31.12.17 Unearned rental income 8.8
Rental income (26.4/12 x 4) 8.8
(Recording of Rental income on Investment Property)

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31.12.17 Property 18.3

FV Gain (P/L) (bal.) 18.3
(Fair value adjustment)

(W-1)
Dr. Investment Property a/c Cr.
1.7.17 Cost 271.7
FV Gain (P/L) (bal.) 18.3 31.12.17 c/d (2.5 x 116) 290

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CHAPTER-5 IAS 21: Foreign Currency Transactions

CHAPTER-5
IAS 21: FOREIGN CURRENCY TRANSACTION
MULTIPLE CHOICE QUESTIONS
01. On 19 December 2019 Star Limited bought goods from Morgan plc for 80,000 British Pounds. At the
date of the transactions, the exchange rates were: £1 = PKR 186
On 31 December 2019, Star Limited’s financial year end, the equivalent rates were: £1 = PKR 182
The average rate for the year ended 31 December 2019 was £1 = PKR 185
Star Limited paid this creditor on 3 February 2020 when the exchange rates were: £1 = PKR 188
Requirements:
(a) Star Limited should recognise purchases on 19 December 2019 at?
(b) The carrying amount of trade payables in respect of above on 31 December 2019 shall be?
(c) The amount of exchange gain or loss for the year ended 31 December 2019 shall be?
(d) The amount of exchange gain or loss to be recognised on 03 February 2020 shall be?

02. Which of the following statements are correct?

(i) An entity can have only one presentation currency
(ii) Functional currency is the currency of primary economic environment in which an entity
operates
(iii) Any currency other than functional currency of the entity is foreign currency.
(a) (i) and (ii)
(b) (i) and (iii)
(c) (ii) and (iii)
(d) (i), (ii) and (iii)

03. Which of the following is NOT a primary indicator for determining functional currency of an entity?
(a) The currency that mainly influences sales prices for goods and services
(b) The currency of the country whose competitive forces and regulations mainly determine the sales
prices of its goods and services
(c) The currency in which funds from financing activities (raising loans and issuing equity) are
generated
(d) The currency that mainly influences labour, material and other costs

04. Which of the following is NOT a monetary item?

(a) Cash at bank (Fixed deposit in Pakistani Rupees)
(b) Investment equity instruments of other companies
(c) Trade receivables
(d) Loan payable

05. On 19 December 2019 Star Limited sold goods to Clinton Inc for US$ 20,000. At the date of the
transactions, the exchange rates were $1 = PKR 148
On 31 December 2019, Star Limited’s financial year end, the equivalent rates were $1 = PKR 149
Star Limited received the amount due on 3 February 2020 when the exchange rates were $1 = PKR 146
Requirements:
(a) Star Limited should record revenue on 19 December 2019 at Rs.…………..
(b) The receivables on 31 December 2019 shall be presented at Rs.…………..
(c) The amount of exchange gain or loss for the year ended 31 December 2019 in respect of above
transaction is Rs.…………..
(d) The amount of exchange gain or loss on receipt of cash on 03 February 2020 is Rs.…………..

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06. Earth Limited has overseas freehold land which it bought for $2 million on 1 March 2019. It uses
revaluation model under IAS 16 for this property. The fair value of land is $2.5 million on 31 December
2019 (year-end).
Relevant exchange rates are:
01 March 2019 $1 = PKR 144
31 December 2019 $1 = PKR 165
Which of the following is correct for its financial statements for the year ended 31 December 2019?
(a) PPE Rs.412.5 million, Revaluation surplus Rs. 82 million, Profit or loss Rs. 42.5 million
(b) PPE Rs. 288 million, Revaluation surplus Rs. 82 million, Profit or loss Rs. 42.5 million
(c) PPE Rs. 412.5 million, Revaluation surplus Rs. 124.5 million, Profit or loss Rs. Nil
(d) PPE Rs.288 million, Revaluation surplus Rs. 124.5 million, Profit or loss Rs. Nil

07. Which TWO of the following are secondary indicator for determining functional currency of an entity?
(a) The currency in which funds from financing activities (raising loans and issuing equity) are
generated
(b) The currency of the country in which the entity is registered
(c) The currency in which receipts from operating activities are usually retained
(d) The currency that mainly influences labour, material and other costs

08. Jupitar Limited functional currency is Pak Rupees. It bought a property in New York for $5million on 2
July 2019. The 25% amount was paid immediately and remaining is to be paid on 31 October 2019.
Jupitar Limited financial year ends on 30 September each year.
Relevant exchange rates are:
02 July 2019 $1 = PKR 164
30 September 2019 $1 = PKR 168
31 October 2019 $1 = PKR 166
The fair value of property is $5.1 million on 30 September 2019.
The property is being used for administrative purposes and has a useful life of 50 years. Jupiter Limited
uses revaluation model.
Requirement:
(a) At which amount the above property shall be presented in statement of financial position on 30
September 2019?
(b) What is the total charge/credit (net) in profit or loss in respect of the above for the year ended 30
September 2019?
(c) What is the total credit in revaluation surplus (OCI) in respect of the above for the year ended 30
September 2019?
(d) At which amount the payables for property shall be presented in statement of financial position on
30 September 2019?
(e) For this part of requirement, assume cost model is used at which amount the above property shall
be presented in statement of financial position on 30 September 2019?
09. Moon Limited functional currency is Pak Rupees. It bought a property in New York for $5 million on 2
July 2019. The 25% amount was paid immediately and remaining is to be paid on 31 October 2019.
Moon Limited financial year ends on 30 September each year.
Relevant exchange rates are:
02 July 2019 $1 = PKR 164
30 September 2019 $1 = PKR 158
31 October 2019 $1 = PKR 156
The fair value of property is $5.1 million on 30 September 2019.
The property is vacant is being held for capital appreciation and has a useful life of 50 years. Moon
Limited uses fair value, where permitted under relevant IFRSs.
Requirements:
(a) At which amount the above property shall be presented in statement of financial position on 30
September 2019?
(b) What is the total charge/credit (net) in statement of profit or loss in respect of the above for the year
ended 30 September 2019?

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10 Which of the following is a monetary item?

(a) Deferred tax liability
(b) Advance paid
(c) Income tax payable
(d) Inventories
(March 2020, Q.4(i), 01 Marks)
11 In relation to IAS 21, which of the following statements is correct?
(a) Exchange gains and losses arising on the retranslation of monetary items are recognised
in other comprehensive income for the period
(b) Non-monetary items carried at fair value in a foreign currency are retranslated at the date
when the fair value was measured
(c) An intangible asset is a monetary item
(d) Non-monetary items carried at cost in a foreign currency are retranslated at the reporting
date (01)
(September 2020, Q.4(i), 01 Marks)
12 Which of the following is correct in accordance with IAS 21?
(a) Functional currency and presentation currency of an entity must be same
(b) Functional currency and presentation currency of an entity must be different
(c) Functional currency of an entity is identified by reference to environment of the business
(d) Functional currency of an entity is identified by reference to the functional currency of its
parent entity (01)
(September 2020, Q.4(vi), 01 Marks)

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SOLUTIONS

01. Rs in “000”
(a) Rs. 14,880 [80 x 186]
(b) Rs. 14,560 [80 x 182] OR [14,880 - 320] (See below)
(c) Rs. 320 gain [80 x 182 – 80 x 186]
(d) Rs. 480 loss [80 x 188 – 80 x 182]
(Working)
Date Particulars Dr. Cr.
19 Dec Inventory 14,880
Payables (80 x 186) 14,880
(Recording of Purchases )
31 Dec Payables 320
Exchange gain 320
(80 x 182 = 14,560 – 14,880)
(Retranslation of Payables at reporting date )
3 Feb Payables (14,880 - 320) 14,560
Exchange loss (Bal.) 480
Cash (80 x 188) 15,040
(Recording of Exchange loss on Settlement of
Payables)

02. (c) Statement (i) is incorrect, an entity may have more than one presentation currencies,
in which they present their financial statements.
03. (c) This is one of the secondary indicators.
04. (b) Investment in other companies is non-monetary item as it may not be realised in
fixed number of currency units.
05. a. Rs. 2,960,000 [20,000 x 148]
b. Rs. 2,980,000 [20,000 x 149]
c. Rs. 20,000 gain [20,000 x (149 – 148)]
d. Rs. 60,000 loss [20,000 x (146 – 149)]
(Working)
Date Particulars Dr. Cr.
Rupees (Rs.) in ‘000’
19 Dec Debtor 2,960
Sale (20 x 148) 2,960
(Recording of Revenue)
31 Dec Debtor 20
Exchange gain 20
(20 x 149 = 2,980 – 2,960)
(Retranslation of Debtors at reporting date )
3 Feb Bank (20 x 146 ) 2,920
Exchange Loss (bal.) 60
Receivables (2960 + 20) 2,980
(Recording of Exchange loss on settlement)

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06. (c) (W-) Calculation of revaluation surplus and depreciation on Land

Date Description Land R. SOCI(P/L)S
Surplus
-----------------Rs. in million------------
01/03/19 Cost (2 m x 144) 288
31/12/19 Revaluation Surplus (bal.) 124.5 124.5
31/12/19 Revalued amount (2.5 x 165) 412.5 124.5
07. (a) and (c)
08. Rs. in million
a) ($5.1 x Rs.168/$) 856.8
b) = Depreciation + Payable Exchange loss 19.1
= 4.1 + {3.75 x (164 - 168)}
c) (W-1) 40.9
d) ($ 3.75 x Rs.168/$) 630
e) [$5 x Rs.164/$] = 820 – (820/50 x 3/12) = 815.9
Journal Entries
Date Description Dr. Cr.
02-07-19 Property ($5 x Rs. 164/$) 820
Cash ($5 x 25%) ($1.25 x Rs. 164/$) 205
Payables ($5 x 25%) ($ 3.75 x Rs. 164/$) 615
30-09-19 Depreciation 4.1
Accumulated Depreciation 4.1
30-09-19 Accumulated Depreciation 4.1
Property 4.1
30-09-19 Property 40.9
Revaluation Surplus-OCI 40.9
30-09-19 Exchange Loss 15
Payable [($3.75 x Rs.168/$ - Rs. 615)] 15
31-10-19 Payables [615 + 15] 630
Exchange Gain (bal.) 7.5
Cash (3.75 x 166) 622.5
(W-1) Calculation of revaluation surplus and depreciation on plant
Date Description Plant R. Surplus SOCI(P/L)
-----------Rs. in million-----------
02/07/19 Cost ($5 x Rs.164) 820
30/09/19 Depreciation (820/50 x 3/12) (4.1)
30/09/19 WDV 815.9
30/09/19 Revaluation surplus (bal.) 40.9 40.9
30/09/19 Revalued am.($ 5.1 x Rs. 168) 856.8 40.9

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09. a) Rs. 805.8 million (W-1)

b) Rs. 8.3 million credit (income) (W-2)
(W-1) Calculation of gain/(loss)
Dr. Investment property a/c Cr.
02/07/19 Cost 820 P/L (bal.) 14.2
($5 x Rs.164/$)
30/09/19 c/d 805.8
($ 5.1 x Rs. 158)

(W-2)
Amount to be taken to profit and loss Rs. in million
Exchange loss on property (W-1) (14.2)
Exchange gain on payables [$5 x 75%] = 3.75 x (164 - 158) 22.5
8.3
10. (c)
11. (b)  Exchange gain/losses on retranslation are recognised in profit and loss and not
in other comprehensive income. (Point a)
 An intangible is actually a non-monetary item. (Point c)
 Non-monetary items such as property plant and equipment carried at cost model
are not retranslated at reporting date. (Point d)
12. (c)

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