Question

(a) Tobaco Berhad, with the Ringgit Malaysia as its functional currency, purchases plant from a foreign entity for $18 million on 31 May 2019 when the exchange rate was $2 to RM1. The entity also sells goods to a foreign customer for $10.5million on 30 September 2019, when the exchange rate was $1.75 to RM1. At the entity’s year end of 31 December 2019, both amounts are still outstanding and have not been paid. The closing exchange rate was$1.5 to RM1. Required: Explain the accounting treatment for both sale and purchases transactions for Tobacco Berhad.

Answer 1

	Functional currency	Transactional currency	Exchange rate
Purchase Plant	RM 9,000,000	$                                                  1,80,00,000.00	$ 2 to RM 1
Sales	RM 6,000,000	$                                                  1,05,00,000.00	$ 1.75 to RM 1
Closing balance			$ 1.50 to RM 1
Sales receivables	RM 7,000,000
Plant creditors	RM 12,000,000
As per IAS 21, All monetary items should be valued at closing rate and any exchange difference arising on account of it should be adjusted in Profit & Loss A/c
	Sales receivables	Plant creditors
Closing balance	RM 7,000,000	RM 12,000,000
Transactional amount	RM 6,000,000	RM 9,000,000
Increase in balances	RM 1,000,000	RM 3,000,000
Gain arising on account of sales receivables	RM 1,000,000	Credit to Profit & Loss A/c AND Increase sales receivable balance
Loss arising on account Plant creditor	RM 3,000,000	Debit to Profit & Loss A/c AND Increase creditor's balance

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