• Profile photo of Swati says

      Thanks for your reply.

      The examiner has written the following solution:

      Under the provisions of IAS 21 – the effects of foreign exchange rates – the loan interest has been correctly treated, being translated at the rate of exchange in force at the date the transaction occurred. However the exchange difference of 2,000 on the loan should be included in the income statement under finance costs rather than being taken to equity.

      So, what i have understood from this is:
      Exchange difference on ‘Loan’ (which is a monetary item) will be taken to finance costs in Profit & Loss statement? Right?


  1. Profile photo of Swati says

    Dear Sir,

    There was a past year question (June 2008). In it, Note #5 says:

    Note 5
    On 1 April 2007 Kappa borrowed 40 million euros for 20 years at a fixed annual rate of interest of 6%, payable in arrears. Relevant exchange rates ($ to 1 euro) are:
    1·2 on 1 April 2007.
    1·25 on 31 March 2008.
    The draft financial statements have included interest payable of $3 million (2·4 million euros x 1·25) in the income statement and an exchange loss on the loan of $2 million (40 million euros x ($1·25 – $1·20)) in the statement of comprehensive income.

    I have understood the treatment of $3 mn (interest payable). Could you please explain what to do of $2 mn & How do we treat this $2 mn in the accounts?

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