Financial Accounting And Reporting – ll

Ahmed Raza Mir

IAS 21; Foreign Currency Transaction

Question 1
Crisp Ltd, a listed company, has Pakistani Rupee as its functional currency. The company entered into
following transactions 13 August 2019;

 Sold goods to a Japanese costumer Mr. Takeshi for ¥25000.

 Bought a vehicle costing ¥750,000 from Tokyo Ltd with a useful life of 5 years. The company
starts charging depreciation in the month of purchase.

Crisp Ltd. received ¥25000 from Mr. Takeshi on 24 September 2019 while the liability of Tokyo Ltd was
paid on 16 October. The company’s year-end is 30 September. The currency rates were as follows;

 On 13 August 2019 ¥1 = Rs.12.8

 On 24 September 2019 ¥1 = Rs.12.4
 On 30 September 2019 ¥1 = Rs.12.6
 On 16 October 2019 ¥1 = Rs.13

Required;

Prepare ALL the necessary Journal Entries to record the above transaction

Question 2
Following are the transactions entered into by Alpha Ltd. with American customers and suppliers in the
first week of December 2019;

 Sold goods to Beta Ltd. for $12000 on credit.

1 Dec
 Purchased a set of conference room furniture, having a useful life of 5 years, for $15,500
2019
from Seeta Ltd.
 Purchased raw material from Theta Ltd. for $25000.
2 Dec
 Paid a penalty of $5500 for breaching the terms of a supply contract.
2019
 Acquired 4,000 shares (3% shareholding) in Eta Ltd at a FV of $4/share. FV at 31 Dec is $3.4
 Received $6000 from Beta Ltd.
3 Dec
 Paid interest of $16,500 on a foreign loan. The interest that will be accrued at the end of the
2019
year for the same loan will be $1375.
4 Dec  Paid $15,000 to Theta Ltd.
2019  Paid for the furniture.
 Sold goods costing Rs.245,000 to Gamma Ltd. against shares of the company. The FV of the
shares at the date of transaction was $8. Alpha Ltd has a policy to charge 40% margin on cost.
5 Dec
(FV at 31 Dec 2019 = $9.5).
2019
 Entered into a contract to provide Chamta Ltd. with 15,000 units of its product B-134 at a
price of $45/unit for the next 15 months starting the next month.
Year-end for Alpha Ltd. is 31 Dec. All the remaining debts and liabilities were paid on 6 Jan 2020. The
currency exchange rate at different occasions were as follows;

Date 1 Dec 2 Dec 3 Dec 4 Dec 5 Dec 31 Dec 6 Jan

2019 2019 2019 2019 2019 2019 2020
1$ Rs.145 Rs.143.8 Rs.145.2 Rs.147.4 Rs.147.8 Rs.150 Rs.149.5
Required: You are required to calculate the exchange gain/ (loss) for the year in respect of the given
transactions and give journal entries for December and January using spot rates.

From The Desk Of Syed Huzaifa Sami

 Financial Accounting And Reporting – ll
Ahmed Raza Mir
IAS 21; Foreign Currency Transaction

Question 3
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:
1. Total cost of contract = US$ 100,000.
2. 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 4
Orlando is an entity whose functional currency is the US dollar. It prepares its financial statements to
30 June each year. The following transactions take place on 21 May Year 4 when the spot exchange rate
was $1 = €0.8.
Goods were sold to Koln, a customer in Germany, for €96,000.
A specialized piece of machinery was bought from Frankfurt, a German supplier. The invoice for the
machinery is for €1,000,000.
The company receives €96,000 from Koln on 12 June Year 4.
At 31 June Year 4 it still owns the machinery purchased from Frankfurt. No depreciation has been
charged on the asset for the current period to 30 June Year 4.
The liability for the machine is settled on 31 July Year 4.
Relevant $/€ exchange rates are:
12 June Year 4 $1 = €0.9
30 June Year 4 $1 = €0.7
31 July Year 4 $1 = €0.8
Required
Show the effect on profit or loss of these transactions for:
1. The year to 30 June Year 4
2. The year to 30 June Year 5

Question 5
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:

From The Desk Of Syed Huzaifa Sami

 Financial Accounting And Reporting – ll
Ahmed Raza Mir
IAS 21; Foreign Currency Transaction

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.
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.
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
Following average exchange rates are also available:
Period 2017 Jul to Dec 2017 Sep to Dec 2017
USD 1 Rs.105 Rs.111 Rs.113
 Equity investments:
On 1 May 2017 KL acquired following equity investments:
Purchase price Transaction cost Total
----------------- --- Rs. in million -- ------------------
Investment A 100 2 102
Investment B 150 3 153
Investment A was designated as measured at fair value through profit or loss whereas investment B was
irrevocably elected at initial recognition as measured at fair value through other comprehensive income.
In October 2017, KL earned dividend of Rs. 12 million and Rs. 9 million on investment A and B
respectively.
20% of investment A and 30% of investment B were sold for Rs. 23 million and Rs. 50 million respectively
in November 2017. Transaction cost was paid at 2%.
As on 31 December 2017, fair values of the remaining investments are given below:
Fair value Transaction cost on disposal Net amount
------------- Rs. in million -------------
Investment A 105 2.1 102.9
Investment B 130 2.6 127.4
Required:
Prepare the extracts relevant to the above transactions from KL’s statements of financial position and
comprehensive income for the year ended 31 December 2017, in accordance with the IFRSs.
(Comparative figures and notes to the financial statements are not required)

Question 6
MZA Limited a dollar based entity, was involved in the following transactions in foreign currencies during
the year ended December 31, 2018.
 MZA Limited bought equipment for 130,000 Dinars on March 04, 20X3 and paid for on August 25,
2018 in Dollars.
 On February 27 2018 MZA Limited sold goods which had cost $46,000 for $68,000 to a company
whose currency was Krams. The proceeds were received on May 25, 2018.
 On September 02, 2018 MZA Limited sold goods which cost $17,000 for $ 24,000 to a company
whose currency was Sarils. The amount was outstanding at December 31, 20X3 but the proceeds

From The Desk Of Syed Huzaifa Sami

 Financial Accounting And Reporting – ll
Ahmed Raza Mir
IAS 21; Foreign Currency Transaction

were received in sarils on February 07, 20X4 when the exchange rate was S 2.306=$1, the
directors of MZA Limited approved the final accounts on March 28, 20X4.
 MZA Limited borrowed 426,000 Rolands on May 25, 20X3 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 - - 7.000 -
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:
For each of the above transactions calculate the gross profit or loss and foreign currency gain or loss
which would be included in the company’s financial statements for the ended December 31, 2018 as
required by IAS-21.
Question 7
ABC Ltd. acquired 8% shareholding in DEF Ltd. on 8 May 2012, details of which are as follows:
Share Capital of DEF Ltd $480,000
Par value $1
FV of shares $8.4
ABC Ltd also purchased a 50,000 sqft. bungalow in London at a price of £965,000 for the purpose of
capital appreciation on 31 Mar 2012 but on 1 May 2012 rented the bungalow to EFG Ltd for
£8,500/quarter in advance. On 1 Dec 2012 ABC Ltd sold the bungalow to EFG Ltd on their request for
£960,000 and returned the advance rent received.
ABC Ltd also disposed of 40% of its shareholding in DEF Ltd. at $8/share on 14 Dec 2012. The company
has asked you regarding the treatment of the above mentioned transactions as per IAS 21.
The exchange rates on several occasions are as follows

Date $ £ Date $ £
1 Jan Rs.56.7 Rs40 31 Oct Rs.64.9 Rs.49.5
31 Mar Rs.58.5 Rs.42.6 1 Nov Rs65 Rs.50
1 May Rs.56.8 Rs.43.3 30 Nov Rs.67 Rs.51
8 May Rs.58 Rs.42.9 1 Dec Rs.66.5 Rs.51.3
31 Jul Rs.61.4 Rs.45.7 14 Dec Rs.68.2 Rs.52.8
1 Aug Rs.61.8 Rs.46.8 31 Dec Rs.70 Rs.55
The extracts of P&L Statement of the company is as follows.
Rs.
Sales 5,850,000
Cost Of Sales (2,200,000)
Gross Profit 3,650,000
Operating Expenses 950,000
Admin Expenses 680,000
Misc. Expenses 425,000
(2,055,000)
Tax Expense (780,000)
Other Comprehensive Income
Revaluation Surplus 685,000

From The Desk Of Syed Huzaifa Sami

 Financial Accounting And Reporting – ll
Ahmed Raza Mir
IAS 21; Foreign Currency Transaction

Net Profit 1,500,000

Required:
Pass the journal entries for the transaction taken during the year and prepare a revised P&L Statements
for ABC Ltd. for the year ended 31 Dec 2012
Question 8
Faire Ltd is a Pakistani manufacturing company engaged in the production and selling of several consumer
products with its operation spread worldwide. The following transaction took place in the year ended Dec
2019:
 On 1 March 2019 the company acquired a loan of $150,000 from an American bank at an interest
rate of 10.43% payable in 5 annual installments on 1st March every year. The company used the
said loan to acquire a plant in America.
 The plant was acquired on 5 Mar 2019 at a price of $95,000 and installed at a cost of $25,000
paid after testing of the plant. The plant was available for use from April but the company began
operation from July. The plant will be depreciated at 10% on WDV method and the company plan
to carry the plant on FV with revaluation taking place at the end of every financial years. The FV
of the plant on Dec 31, 2019 was calculated at $105,000. FV on
The currency rates at several occasion were as follows:
Date Rs/USD
1 March 2019 65
5 March 2019 66
31 March 2019 68
31 Dec 2019 87
31 Dec 2020 100
Required
Pass journal entries and prepare extracts of and balance sheet for the years 2019 and 2020 (bifurcation
of exchange difference is not required)

From The Desk Of Syed Huzaifa Sami