DipIFR Syllabus B. Elements of financial statements - Foreign Exchange Single company - Past Papers ^{1 / 2}

Delta is an entity which prepares financial statements to 31 March each year. The functional currency of Delta is the dollar ($). The following events have occurred which are relevant to the year ended 31 March 2018:

Event (b)
On 1 February 2018, Delta purchased some inventory from a supplier whose functional currency was the dinar. The total purchase price was 3·6 million dinars. The terms of the purchase were that Delta would pay for the goods in two instalments. The first instalment payment of 1,260,000 dinars was due on 15 March 2018 and the second payment of 2,340,000 dinars on 30 April 2018. Both payments were made on the due dates. Delta did not undertake any activities to hedge its currency exposure arising under this transaction. Delta sold 60% of this inventory prior to 31 March 2018 for a total sales price of $480,000. All sales proceeds were receivable in $. After 31 March 2018, Delta sold the remaining inventory for sales proceeds which were in excess of their cost.

Relevant exchange rates are as follows:
– 1 February 2018 – 6·0 dinars to $1.
– 15 March 2018 – 6·3 dinars to $1.
– 31 March 2018 – 6·4 dinars to $1. (11 marks)

Required:
Explain and show how the two events would be reported in the financial statements of Delta for the year ended 31 March 2018.

Note: The mark allocation is shown against each of the two events above.

Delta is an entity which is engaged in the construction industry and prepares financial statements to 30 September each year. The financial statements for the year ended 30 September 2015 are shortly to be authorised for issue. The following events are relevant to these financial statements:

On 1 August 2015, Delta purchased a machine from a supplier located in a country whose local currency is the groat. The agreed purchase price was 600,000 groats, payable on 31 October 2015. The asset was modified to suit Delta’s purposes at a cost of $30,000 during August 2015 and brought into use on 1 September 2015. The directors of Delta estimated that the useful economic life of the machine from date of first use was five years. Relevant exchange rates were as follows:

– 1 August 2015 – 2·5 groats to $1.
– 1 September 2015 – 2·4 groats to $1.
– 30 September 2015 – 2·0 groats to $1.
– 31 October 2015 – 2·1 groats to $1.
(7 marks)

Required: 
Explain and show how the three events would be reported in the financial statements of Delta for the year ended 30 September 2015.

Note: The mark allocation is shown against each of the three events above.

You are the financial controller of Omega, a listed company which prepares consolidated financial statements in accordance with International Financial Reporting Standards (IFRS). The year end of Omega is 31 March and its functional currency is the $. Your managing director, who is not an accountant, has recently prepared a list of questions for you concerning current issues relevant to Omega:

(c) As you know, on 1 January 2014 we purchased a machine for 2 million kroner. At that date the exchange rate was $1= 10 kroner. We don’t have to pay for this purchase until 30 June 2014. The kroner strengthened against the $ in the three months following purchase and by 31 March 2014 the exchange rate was $1 = 8 kroner. I thought these exchange fluctuations wouldn’t affect our financial statements because we have an asset and a liability denominated in kroner which was initially the same amount. We’re depreciating this machine over four years so the future year-end amounts won’t be the same, of course. Something I heard at a seminar, but didn’t really grasp, made me think I could be mistaken. Please explain the impact of this transaction on our financial statements for the year ended 31 March 2014. (7 marks)

Required:
Provide answers to the issues raised by the managing director.

Note: The mark allocation is shown against each of the three issues above.

Delta is an entity which prepares financial statements to 31 March each year. The functional currency of Delta is the $. During the year ended 31 March 2013 the following events occurred:

(a) On 1 April 2012, Delta raised loan finance from European investors. The investors subscribed for 50 million €1 loan notes at par. Delta incurred incremental issue costs of €1 million. Interest of €4 million is payable annually on 31 March, starting on 31 March 2013. The loan is repayable in € on 31 March 2022 at a premium and the effective annual interest rate implicit in the loan is 10%. The appropriate measurement basis for this loan is amortised cost. Relevant exchange rates are as follows:

– 1 April 2012 – €1 = $1·40.
– 31 March 2013 – €1 = $1·45.
– Average for year ended 31 March 2013 – €1 = $1·42. (7 marks)

Required:
Explain and show (where possible by quantifying amounts) how the three events would be reported in the financial statements of Delta for the year ended 31 March 2013.

Note: The mark allocation is shown against each of the three events above.