Question

In: Accounting

Which of the following practices is not allowed by International Financial Reporting Standards? Use of the...

Which of the following practices is not allowed by International Financial Reporting Standards?

Use of the closing exchange rate for the translation of the statement of profit or loss of a foreign subsidiary

Accounting for incorporated joint ventures using the equity method.

Accounting for changes in accounting policy by restating comparatives and adjusting the prior year opening retained earnings

Recognising actuarial gains and losses in other comprehensive income

Solutions

Expert Solution

All the foreign currency transactions initially to be recorded at the exchange rate existing on the date of transaction. Later on a Subsequent Balance sheet date,

Particulars Measurement
Monetary items Closing Rate
Non -Monetary items(Historical Cost) Exchange rate on the date of transaction
Non -Monetary items(Fair Value) Exchange rate on the date of determination of fair value

Exchange difference if any, will be recognised in the profit and loss account.

So therefore the monetary items in profit and loss account will be initially recognised at cost and later on balance sheet date, they will recognised at the closing exchange rate and the exchange difference if any will form part of Profit and loss account.

Therfore,Use of the closing exchange rate for the translation of the statement of profit or loss of a foreign subsidiary is not followed as per IFRS.

Additional Points

1.IFRS requires an investor to account for its investment in joint Ventures and Associates Using Equity Method. Under equity method, the investment is to be recognised at cost initially.

2.If there is change in accounting policy, the effect should be given retrospectively by restating the comparitives and adjusting the prior period retained earnings.

3.Actuarial gains and losses are now required to be recognised in other comprehensive income and to be excluded from profit and loss account.


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