Q19 Bubble (BPP SBR P&R Kit Sep 2019 – Jun 2020)

Hi,

First, I’d like to thank you for the incredible service you provide. I discovered and joined OpenTuition a couple of months ago and have been immensely benefitting from it. So, I’d like to thank you once again for this service.

Regarding the question, I would kindly like your help with (a)(i) (in the P&R Kit)

This question also appeared in Sep/Dec 2015 in P2
https://www.accaglobal.com/content/dam/ACCA_Global/Students/prof/p2/P2%20INT/d15_hybrid_p2int_q.pdf

In the answer (Page 144 – BPP SBR P&R Kit Sep 2019 – Jun 2020),

On 1 Feb 20X5, Tyslar recorded the loan in its financial statements at 90m dinars ($10m × 9)

On 1 Jul 20X5, Tyslar repaid 50m dinars ($5m × 10)

And therefore deducted 50m dinars from 90m dinars leaving the balance of the loan in their financial statements at 40m dinars.

Then, on 31 Oct 20X5, the remaining balance of $5m was translated at 9.5 dinars bringing the balance in Tyslar’s financial statements to 47.5m dinars and giving an exchange loss of 7.5m dinars

However, I want to ask that before Tyslar repaid 50m dinars, shouldn’t we retranslate the full loan amount of $10m at the rate of 10 dinars:$1 at 1 Jul 20X5 and then record the exchange loss in P/L as follows:

$10m × 10 = 100m dinars

100m dinars – 90m dinars = 10m dinars (Exchange loss)

Journal entry:
Dr. P/L – 10m dinars
Dr. Non-current Liabilities – 40m dinars
Cr. Cash – 50m dinars

Therefore, we’ll have to deduct 40m dinars from 100m dinars bringing the balance of the loan in Tyslar’s financial statements to 60m dinars rather than the previous 40m dinars.

On 31 Oct 20X5, the remaining balance will be the same 47.5m dinars ($5m × 9.5) but the exchange loss will be 12.5m dinars (60m dinars – 47.5m dinars) rather than the previous 7.5m dinars

I’m asking this because the answer to Activity 1 (Chapter 16 – BPP SBR Course Notes Sep 2019 – Jun 2020) in the appendix (Page 575) shows the same way of calculation as I have suggested above.

Thanks

Kind regards