FR IAS 21

IAS 21 The Effects of Changes in Foreign Exchange Rates defines the term ‘functional

currency’.

Which of the following is the correct definition of ‘functional currency’?

• The currency in which the financial statements are presented

• The currency of the country where the reporting entity is located

• The currency that mainly influences sales prices and operating costs

• The currency of the primary economic environment in which an entity operates

Sunshine is an entity with a reporting date of 31 December 20X1 and a functional currency

of dollars ($). On 30 June 20X1, it purchased land from overseas at a cost of 30 million dinars.

The land is an item of property, plant and equipment and is measured using the cost model.

Exchange rates are as follows:

Dinars: $1

As at 30 June 20X1 3.0

As at 31 December 20X1 2.0

Average rate for year‐ended 31 December 20X1 2.5

The fair value of the land at 31 December 20X1 was 32 million dinars.

What is the carrying amount of the land as at 31 December 20X1?

• $10 million

• $15 million

• $12 million

• $16 million

In relation to IAS 21 The Effects of Changes in Foreign Exchange Rates, which of the

following statements are true?

(i) Exchange gains and losses arising on the retranslation of monetary items are

recognised in other comprehensive income in the period.

(ii) Non‐monetary items measured at historical cost in a foreign currency are not

retranslated at the reporting date.

(iii) An intangible asset is a non‐monetary item.

• All of the above

• (ii) and (iii) only

• (i) and (iii) only

• (i) and (ii) only

An entity took out a bank loan for 12 million dinars on 1 January 20X1. It repaid 3 million

dinars to the bank on 30 November 20X1. The entity has a reporting date of 31 December

20X1 and a functional currency of dollars ($). Exchange rates are as follows:

Dinars: $1

1 January 20X1 6.0

30 November 20X1 5.0

31 December 20X1 5.6

What is the total loss arising (to the nearest $000) on the above transactions in the year

ended 31 December 20X1?

• $708000

• $207000

• $305000

• $101000

A manufacturing entity buys a machine (an item of property, plant and equipment) for

20 million dinars on 1 January 20X1. The machine is held under the cost model and has a

useful life of 20 years. The entity has a reporting date of 31 December 20X1 and a functional

currency of dollars ($).

Exchange rates are as follows:

Dinars: $1

1 January 20X1 2.0

31 December 20X1 3.0

Average rate for year‐ended 31 December 20X1 2.5

What is the carrying amount of the machine as at 31 December 20X1?

• $9.7 million

• $9.6 million

• $9.5 million

• $6.3 million

Vance buys and sells goods in Kromits (Kr), but has a functional currency of dollars ($).

Vance purchased goods for Kr 10,000 on 1 September 20X1. At Vance’s year end of 31 December

20X1 this amount remains unpaid.

Vance sold goods on 1 September 20X1 for Kr 60,000. On 1 October 20X1 Vance received Kr 30,000.

The remaining Kr 30,000 is unpaid at 31 December 20X1.

Vance’s assistant accountant estimated the tax expense for the year ended 31 December 20X1 at

$43,000. However, he had ignored deferred tax. At 1 January 20X1 Vance had a deferred tax liability

of $130,000. At 31 December 20X1 Vance had temporary taxable differences of $360,000. Vance

pays tax at 25%. All movements in deferred tax are taken to the statement of profit or loss.

Relevant exchange rates are:

1 September Kr10:$1

1 October Kr10.5:$

31 December Kr8:$1

Average rate Kr9:$1

What gain or loss should be recorded in the statement of profit or loss for the year ended

31 December 20X1 in relation to the payable recorded for the purchase of goods?

• Loss of $111

• Gain of $111

• Loss of $250

• Gain of $250

Vance buys and sells goods in Kromits (Kr), but has a functional currency of dollars ($).

Vance purchased goods for Kr 10,000 on 1 September 20X1. At Vance’s year end of 31 December

20X1 this amount remains unpaid.

Vance sold goods on 1 September 20X1 for Kr 60,000. On 1 October 20X1 Vance received Kr 30,000.

The remaining Kr 30,000 is unpaid at 31 December 20X1.

Vance’s assistant accountant estimated the tax expense for the year ended 31 December 20X1 at

$43,000. However, he had ignored deferred tax. At 1 January 20X1 Vance had a deferred tax liability

of $130,000. At 31 December 20X1 Vance had temporary taxable differences of $360,000. Vance

pays tax at 25%. All movements in deferred tax are taken to the statement of profit or loss.

Relevant exchange rates are:

1 September Kr10:$1

1 October Kr10.5:$1

31 December Kr8:$1

Average rate Kr9:$1

What gain or loss should be recorded in the statement of profit or loss for the year ended

31 December 20X1 in relation to the sale of goods?

• Loss of $607

• Gain of $607

• Loss of $893

• Gain of $893

Vance buys and sells goods in Kromits (Kr), but has a functional currency of dollars ($).

Vance purchased goods for Kr 10,000 on 1 September 20X1. At Vance’s year end of 31 December

20X1 this amount remains unpaid.

Vance sold goods on 1 September 20X1 for Kr 60,000. On 1 October 20X1 Vance received Kr 30,000.

The remaining Kr 30,000 is unpaid at 31 December 20X1.

Vance’s assistant accountant estimated the tax expense for the year ended 31 December 20X1 at

$43,000. However, he had ignored deferred tax. At 1 January 20X1 Vance had a deferred tax liability

of $130,000. At 31 December 20X1 Vance had temporary taxable differences of $360,000. Vance

pays tax at 25%. All movements in deferred tax are taken to the statement of profit or loss.

Relevant exchange rates are:

1 September Kr10:$1

1 October Kr10.5:$1

31 December Kr8:$1

Average rate Kr9:$1

Which of the statements below is/are true?

The inventory purchased on 1 October 20X1 should be retranslated at the

closing rate if the goods remain in inventory at 31 December 20X1.

• TRUE

• FALSE

Vance buys and sells goods in Kromits (Kr), but has a functional currency of dollars ($).

Vance purchased goods for Kr 10,000 on 1 September 20X1. At Vance’s year end of 31 December

20X1 this amount remains unpaid.

Vance sold goods on 1 September 20X1 for Kr 60,000. On 1 October 20X1 Vance received Kr 30,000.

The remaining Kr 30,000 is unpaid at 31 December 20X1.

Vance’s assistant accountant estimated the tax expense for the year ended 31 December 20X1 at

$43,000. However, he had ignored deferred tax. At 1 January 20X1 Vance had a deferred tax liability

of $130,000. At 31 December 20X1 Vance had temporary taxable differences of $360,000. Vance

pays tax at 25%. All movements in deferred tax are taken to the statement of profit or loss.

Relevant exchange rates are:

1 September Kr10:$1

1 October Kr10.5:$1

31 December Kr8:$1

Average rate Kr9:$1

• TRUE

• FALSE

Tabasco’s functional currency is the euro but its presentation currency is the dollar. It has a head office property bought three years ago and carried at historical cost.

At what exchange rate should the property be measured at the reporting date?

• 1. The rate on the date of purchase

• 1. The rate at the reporting date

• 1. The rate at the beginning of the reporting period

• 1. The average rate for the year