Question

a) A Pakistani company bought a machine from a German supplier for €200,000 on 1 March when the exchange rate was Rs. 120/€.   By 31 December, the end of the company’s accounting year, the exchange rate was Rs. 110/€.
At 31 December, the Pakistani company had not yet paid the German supplier any of the money that it owed for the machine.
Required
Show the amounts that must be recognised to record this transaction.         (05)

b) A Pakistani company sells goods to a customer in Saudi Arabia for SR 72,000 on 12 September, when the exchange rate was Rs.28/SR (Saudi riyal).
It received payment on 19 November, when the exchange rate was Rs.30/SR. The financial year-end is 31 December.
Required
Show the amounts that must be recognised to record this transaction;                              (05)
i) Initially and;
ii) At year end
c) A Pakistani company (with the rupee as its functional currency) has a inancial year ending on 31 December. It bought a building in Bahrain on 1 December 20X6 for 100,000 Bahraini dinar (BD). The building was revalued to BD 120,000 on 31 December 20X6 as permitted by IAS 16.

Exchange rates were:
1 December 20X6 Rs.275/BD1
31 December 20X6 Rs.290/BD1

Required (05)
Show the amounts that must be recognized to record this transaction;

Answer 1

a}

For all non-monetary items in foreign currency carried at historical cost – use the historical exchange rate (at the date of transaction – thus, you keep non-monetary asset at historical rate with no recalculation);

machinary should be recognised at historical value i.e 200000*120 = 24000000

b}

At intially

For all monetary items in foreign currency – use transaction exchange rate at the reporting date;

72000*28 = 2016000

For all monetary items in foreign currency – use closing exchange rate at the reporting date;

72000*30 = 2160000

Difference of 2160000-2016000 = 144000 is recognised in the foreign exchange gain reserve and transfered to Profit and loss account on actual realisation.

c}For all non-monetary items in foreign currency carried at fair value – use the exchange rate at the date when fair value was determined.

Builiding in bahrain need to recognised at rate on the fair value determination date i.e 100000*290 =29000000

Builiding in bahrain initially  recognised at rate on the transaction date 1.e 100000*275 = 27500000

Difference of 29000000-27500000 = 1500000 is recognised in the foreign exchange gain reserve