- This topic has 3 replies, 4 voices, and was last updated 1 year ago by
.
- Posts
Dear Sir, I am not a native English speaker. I have difficult in this question. The question gives $ to dinar Exchanged rate. I think 1$ is equal to 4.5 dinars at 1 June 2007. but in acca answer they are calculated as 1 dinar is equal to $4.5. How can I understand that?
On 1 June 2007, Bravado purchased an equity instrument of 11 million dinars which was its fair value. The
instrument was classified as available-for-sale. The relevant exchange rates and fair values were as follows:
$ to dinars …………………………. Fair value of instrument –
……………………………………………………………………….dinars
1 June 2007 …………..4·5 ……………………………………………..11
31 May 2008 …………..5·1……………………………………………. 10
31 May 2009 ………….4·8 ……………………………………………..7
Bravado has not recorded any change in the value of the instrument since 31 May 2008. The reduction in fair
value as at 31 May 2009 is deemed to be as a result of impairment.Working 4
Available for sale instrument
Date……………………….. Exchange rate …………………….Value ………….Change in fair value
……………………………………………………….Dinars m ………$m……………….. $m
1 June 2007 ……………….4·5…………………. 11 …………….49·5
31 May 2008……………… 5·1 ………………….10 …………….51 …………………1·5
31 May 2009 ……………….4·8………………….. 7 ……………33·6 ……………(17·4)
The asset’s fair value in the overseas currency has declined for successive periods. However, no impairment loss is recognised
in the year ended 31 May 2008 as there is no loss in the reporting currency ($). The gain of $1·5 million would be recorded
in equity. However, in the year to 31 May 2009 an impairment loss of $17·4 million will be recorded as follows:
$m
DR Other components of equity 1·5
DR Profit or loss 15·9
CR AFS investments 17·4Hi,
It specifically states $ to dinars in the question so the figure given is the $ figure, so $4.5 to the dinar.
As for what you are then struggling with then I’m sorry but I don’t know what it is as it seems as if you’ve just copied out the answer. If you let me know what it is you are struggling with then I’ll happily help.
Thanks
Within part (e) of the question it specifically states “Bravado has not recorded any change in value of the instrument since 31 May 20X8” so the gain of $1.5 million will already have been recorded and will be in the financial statements already.
The mistake in your solution is that you are taking the $1.5 million gain, which is causing an excess and eventually producing an incorrect answer.
The solution will be as follows:
Fv @ 1st.June.07 = 11mDinars x $4.5 = 49.5
Fv @ 1st.June.08 = 10mDinars x $5.1 = 51
51-49.5 = 1.5, this gain is already recorded in the financial statements, so you don’t have to do anything about it.
Fv @ 1st.June.08 = 7mDinars x $4.8 = 33.6
Now as you can see the fair value has declined from 51 to 33.6, a difference of 17.4m. This loss will be taken to OCE, with the following double entry.
Debit OCE 17.4
Credit Investment 17.4
The debit OCE will reduce the group OCE. and the Credit Invesment of 17.4 will reduce the financial asset in non-current assets.
- The topic ‘Bravado 2009 June P2 Exam Question’ is closed to new replies.