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December 8, 2015 at 10:00 pm
How badly will you be penalised if you mistakenly used to incorrect rate during the “Translation Process?
December 8, 2015 at 10:17 pm
Ask yourself “How many mistakes have I made?” and the answer is “One!”
Ok, it’s a big one, but it’s still just one. Yes, you could lose two marks because it’s such a whopper, but that’s all
It’s not the end of the World
July 20, 2015 at 2:12 pm
All three lectures on Foreign Currency Matters seem to be exactly the same lecture! All lasting about 36.5 minutes long, with a section about 3/4 the way regarding the inventory account. Is this a problem my side, or is it a problem with the Open Tuition links. Thanks!
July 20, 2015 at 6:05 pm
This sounds like a problem at your end – I certainly didn’t do three identical lectures!
July 20, 2015 at 7:27 pm
I wasn’t suggesting you were doing three identical lectures! That might have been a bit unnerving for your students!
But have you clicked on the 2nd and 3rd videos in this section? I’ve just tried on my netbook (I was on my laptop before) and I’m getting the same result.
Apart from obviously wanting to view the other videos, I’m keen to put off the cash flow lectures for a bit longer…it’s not my favourite area!
Incidentally, I’ve watched all the lectures in the past, I’m coming back to it again after failing P2 last year!
July 20, 2015 at 8:24 pm
Hmm, that’s interesting!
I’ll get Admin to have a look at it
Thanks for pointing it out
July 21, 2015 at 9:25 am
sorry about this mix up. it should be OK now, reload those two pages
July 21, 2015 at 10:21 am
Hi, thanks for letting me know. And no need to apologise, I’m very grateful to be getting these lectures for free!
May 27, 2015 at 4:32 am
A small thing I had to ask here:
I understood that closing bal of borrowings has increased due to the change in Foreign currency rate. But why do we not make any adjustment in the Interest Part?
Alpha has charged $ 5000 million as Finance cost to P/L. But actually, the charge should be 58800 x 11.1% = 6527 $ Isn’t it? But the solution is showing nothing with respect to the finance cost.
Its an adjustment of Cons. B/S (June 2012 ,DipIFR)
Note 8 – Long-term borrowings The long-term borrowings of Alpha arose on 1 April 2011 when Alpha borrowed €50 million. Alpha incurred issue costs of €1 million. The exchange rate at 1 April 2011 was $1·20 = €1. On 1 April 2011 Alpha included $60 million in long-term borrowings and charged $1·2 million to comprehensive income.
The borrowing requires Alpha to make annual interest payments in arrears of €4 million. The exchange rate on 31 March 2012 was $1·25 = €1. Alpha therefore charged a finance cost of $5 million to comprehensive income on 31 March 2012.
The loan is repayable by Alpha on 31 March 2016 at an amount of €58 million. The effective annual interest rate applicable to this loan is 11·1%. Other than as described in this note, Alpha has made no other accounting entries relating to this loan. You can ignore the deferred tax implications of any adjustments you make due to the information in this note.
I have done it like this:
Op. Bal Interest Paid Effective Interest @ 11.1% closing Bal
49,000 € (4000 € ) 49,000×11.1%= 5439 € 50,439 €
Translated into $
58,800 $ (5000 $ ) 58,800x 11.1% = 6527 $ 50,439x 1.25= 63,049
op. rate cl. rate cl. rate
So, should we not charge $ 6,527 to P/L (and reduce from Cons. Ret Ears) and do the reversal of $ 5,000 which has been charged by Alpha.
Reporting date is: 31 March 2012.
April 23, 2015 at 7:32 am
Hello Sir…. Is translation of foreign currency cash and cash equivalents a realized gain or unrealized gain? Why?
Is cash held in foreign currency translated?
April 23, 2015 at 7:47 am
Yes, all foreign denominated values at converted but, in the case of cash, I have visions of €32 in a cash box in the cashier’s office left over from a director’s visit to a European client. You wouldn’t bother converting that on the grounds of immateriality. In practice the cashier would, with permission, put £20 from their own funds and take the euros in readiness for their own foreign holiday next year.
In fact, in practice, those euros wouldn’t even leave the director’s possession! They would be explained away as “incidental expenses where I was not able to get a receipt”! (coffee from a coffee machine or parking where the ticket machine ate your ticket whilst lifting the barrier for you to drive out from the car park)
Translation of the currency is unrealised
Please, in future, post questions like this on the Ask the Tutor page
April 23, 2015 at 3:09 pm
Thank you sir..
March 2, 2015 at 2:48 pm
The opening inventory is DEBITED to statement of profit or loss – whatever makes you think that it’s credited?
The figure for the statement of financial position is the one on the debit side below the total lines
March 2, 2015 at 3:24 pm
sorry I meant is the closing* inventory credited to the profit and loss?
March 2, 2015 at 3:34 pm
Correct, closing inventory is a deduction made within the cost of sales calculation. Effectively therefore it is credited to statement of profit or loss
March 2, 2015 at 2:17 pm
hello sir – in relation to your inventory T account – is opening inventory credited to the income statement? and which figure of the account would you put in the balance sheet?
February 26, 2015 at 5:55 pm
Hello sir…..how did you get the 28,571 figure on the debit side of the potter account, i’m confused why this is figure is there?
February 26, 2015 at 6:16 pm
Is it not the amount in litas translated at the closing rate?
February 26, 2015 at 6:25 pm
I know but wouldn’t that figure on the debit side of the payables account reduce the liability? because when we do pay of creditors don’t we debit the payables account?
February 27, 2015 at 1:16 am
It’s the balance on the account at the year end – 80,000 litas converted at closing rate of 2.8 litas to 1$.
It’s on the debit side above the line and carried down to the credit side below the line so as at 1 January we will be showing a liability of $28,571
Is that better?
March 1, 2015 at 1:19 pm
yes sir thank you……I get abit confused when closing the accounts. but yeah that did clear this up thanks.
March 1, 2015 at 3:23 pm
You’re welcome – keep posting 🙂
November 27, 2014 at 5:52 am
so what about if it was sale of goods at a contracted in ex 1 instead of purchase?
then we will take into account of exchange difference between the contracted rate and the amount that should have been paid at the date of settlement ? as now it is the entity who will suffer the loss or gain due to exchange rate changes?
November 27, 2014 at 10:34 am
If it’s at a contracted rate, then it’s at a contracted rate!
Either way, one or other of the companies will be lucky and make a gain and the other company will be correspondingly unlucky
November 27, 2014 at 11:04 am
so no gain or loss on contracted rate will be recorded in any situation (purchase or sale) ?
and also what happens when there is
a) partial disposal (no loss of control)
b) loss of control
b) full disposal of a foreign subsidary
i read it in the book that the gain/loss on exchange difference is recycled back from OCI to I/S.. how much do we recycle in each of the above situations?
thank you sir
November 27, 2014 at 11:16 am
None, partial, all
Does that do it for you?
November 27, 2014 at 1:05 pm
yup so that means for partial its just exchange difference gain/loss* disposal %?
November 27, 2014 at 4:13 pm
So I believe 🙂
November 27, 2014 at 4:36 pm
November 28, 2014 at 6:41 am
November 30, 2014 at 9:33 am
and i have a problem again :D..
on the partial disposal of a foreign subsidary, the entity shall re-attribute the proportionate share of the cumulative amount of exchange differences recognised in OCI to the NCI in that foreign operation.
tell me if i am correct?
this para means that if for eg. the exchange difference gain in OCI was $10. disposal of 20% (previously had 50%) then
10*20% = $2 will be recycled back to P/L and the $8 remaining in the OCI will be re attributed between the NCI and Parent?
If yes, then what will be the NCI amount?
if no, then please explain me with a help of a better example 😀
thank you so much
November 30, 2014 at 9:39 am
What are the percentage holdings after the 20% disposal?
November 30, 2014 at 1:31 pm
at start it was 50% then after disposal of 20% — 70% NCI and 30% parent
November 30, 2014 at 5:15 pm
What on earth can you possibly be thinking?
How were we consolidating a company as a subsidiary when we held only 50% (IFRS10 excepted) and following disposal of 20, our holding is now 30% with a 70% NON-CONTROLLING interest?
Come on Shreya, you can do better than that!
November 30, 2014 at 6:51 pm
Now can you imagine the stress level 🙁 lol.. How about..
A) when there is a loss of control 70% down to 40%
B) no loss of control 70% down to 60%
Exchange gain in OCI $20.
PS. I know there is no cons. at 30% .. I only want to know how all this will affect the recycling of exchange and loss from OCI to p/l … And what happen to NCI share as per above pars of re-attribution of the cumulative fig.
Thank you 🙂
December 1, 2014 at 10:03 am
In a situation of a mere transfer between owners (70% down to 60%) and provided the nci originally had been valued at full, fair value, then the amount paid by the nci to increase their share will include within the purchase cost an element for the purchase of a share of goodwill.
In that situation, the goodwill is simply shifted sideways from one part owner to another part owner
Where a sale is made and we lose control of the subsidiary, the value of the holding retained in the (now) associate is the base from which Investment in Associate is then built.
That value of the remainder of the original holding in a subsidiary is included within the working to calculate the profit / loss achieved / sustained on the disposal of the subsidiary.
Upon that disposal, the figure for all the goodwill is included in the calculation of the fair value of the net assets at date of acquisition (beware if nci was proportional) in order to arrive at the profit or loss on the disposal
Does that now do it?
September 14, 2014 at 6:28 pm
Thanks for the link, but am I correct in thinking that my previous answer to your previous post has now resolved the issue?
September 13, 2014 at 9:59 pm
The double entry is Dr profit or loss / comprehensive income and Cr the loan account
What has the examiner done in the printed solutions?
September 14, 2014 at 2:02 pm
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?
September 14, 2014 at 6:27 pm
Yes, as a monetary item it will be translated at the closing rate and any difference from previous translation will go to profit or loss
September 13, 2014 at 9:45 pm
There was a past year question (June 2008). In it, Note #5 says:
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?
September 14, 2014 at 4:59 pm
Give me a link so I can find the question for myself
September 14, 2014 at 5:31 pm
Here is the link:
See Question 4 (Note 5 on page 9). Its a June 2008 – DipIFR ques.
May 18, 2014 at 7:47 pm
I just wanted to confirm the following:
1) When we hold a property abroad, which is classified under IAS16 Revaluation model, then, any increase in the value at the year end goes to OCE, whereas any decrease goes to RE
2) Any changes in value of monetary assets/liabilities denominated in foreign currency go through RE, AND
3) When we retranslate sub’s assets, the gain/loss goes to RE, while the gain/loss on the Goodwill goes to OCE! ( though the text says the entire difference should go through OCI, this is how it has been treated in the BPP kit)
Please let me know if I am right with respect to the above!
Thanks a ton!
November 13, 2012 at 9:14 pm
I have a word of explanation for Mike. I have been an accountant in Poland and now I am an accountant in the UK so have some understanding about both inventory and COS concepts. I think UK way is more difficult to really control the stock. In Poland purchases go to inventory and should be there until sale. Then you have the stocktaking at year and and can compare both records to discover missing/stolen/destroyed items. In Poland people working at warehouse-the employee are personally financially responsible for the inventory and are charged by employer if something is missing. Sometimes they have a limit of acceptable losses in inventory but employees should know this figure. In UK you put everything to purchases and deduct the closing stock but then you lose the info what should have been in the stock but it’s not there. It does not mean automatically that it is the purchase. Only because something is not in stock at the end of the year does not mean it is the cost of sale. In UK your HMRC is more people friendly and it is why the cost control is more relaxed, and employers are more keen to put everything as company expenses and employees are not financially charged for losses even if it is cash. UK attitude is that in general people are honest until you prove they are not. In Poland the attitude is that in general people lie and steal until they prove they are honest.
December 1, 2013 at 10:37 am
Thank you Pannanikt for sharing with us all your insight into something which I personally find no problem with. In fact, my only problem in this area is understanding how a Continental Cost of Sales Account works – I simply cannot get my head around the mechanics of the double entry involved and, before any of you helpful readers tries to explain it, I really do not want to know (you can’t teach an old dog new tricks)
November 29, 2011 at 3:26 pm
ah ha ha “am I smelling bullshit” ha I love this tutor 🙂
December 1, 2013 at 10:06 am
November 19, 2011 at 10:11 am
for P2 it’s just an inventory account on the SFP – I think the COS A/c is something specific to the country where the lectures took place?
I skimmed over that part until he got back to the question!! 🙂
November 19, 2011 at 4:10 am
What is he going on about, “an inventory A/c?” o is it a “COS A/c” Do I need to know this? Got me confused!!!!!!
November 12, 2011 at 9:56 am
oops 80,000 Litas, not $ 🙂
November 12, 2011 at 9:54 am
Hi the $25,806 is the original transaction value with Potter ($80,000), divided by the exchange rate at time of actual payment (3/2/10) $1 = 3.1 litas.
80,000 / 3.1 = 25,806.
Basically we had a payable at year-end of 28,571, but the rate has moved in our favour between year-end and actual payment.
The difference between the year-end payable 28,571 and amount actually paid 25,806 becomes income in the new financial year as the payable is fully discharged
November 3, 2011 at 1:46 am
Kindly explain how did you get the $25,806 – No explanation given.
September 23, 2011 at 4:10 am
Try with Firefox browser instead of Google, it will play well
June 12, 2011 at 11:11 pm
‘I’m smelling bullsh*t here’ – loved this remark:):) 6:01
May 30, 2011 at 1:25 pm
where did he get 25806 from, it was never explained?????????
May 16, 2011 at 6:41 pm
@admin Great website but to be honest this player absolutely sucks. There is no option to control the speed or size, or it doesn’t work.
May 11, 2011 at 7:24 pm
lecture plays fine here
March 10, 2011 at 5:33 am
erm, sadly the lecture is not playing well. hopefully someone can do something about this please?
March 10, 2011 at 8:19 am
We’re afraid, lecture plays fine, so it is something you should do on your side, to fix things..
your internet connection or PC
September 18, 2010 at 1:05 pm
lecture is not playing what problem?
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