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Foreign currency – (IAS 21) Exchange differences – ACCA (SBR) lectures

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  1. Hi my question about this lecture is if the exchange loss on Goodwill were recognised to write down the retained earning of the group in the example 3, how is it in the rule says that it is recognised in OCI?

    I mean if it should goes to OCI, as it debits the OCI as a loss, It won’t affect the retained earning of the group is it? as the OCI is transfered to OCE in the consolidated SFP.

    Thanks for your time!

  2. Good morning
    I need help on this question please

    Icey owns 126 million shares out of Wonderland 210 million equity shares for $46 million. The shares in Wonderland were acquired on 1 November 20X4. Wonderland is located overseas which has presented its financial statements in dinars. At the date of acquisition, retained earnings were 258 million dinars and Wonderland had no other components of equity. On this date, non-depreciable land was carried in the financial statements of Wonderland at 50 million dinars, but it had a fair value of 70 million dinars.
    The non-controlling interest at acquisition is to be calculated at fair value by reference to the quoted share price of Wonderland. At the acquisition date, the quoted share price was 2.62 dinars per share. An impairment review of goodwill was undertaken as at 31 October 20X5. The goodwill of Wonderland is to be impaired by 20%. Wonderland has not issued any equity shares since acquisition.
    The following exchange rates have been provided: Dinars to $
    1 November 20X4 8
    31 October 20X5 9.5
    Average to 31 October 20X5 8.5
    Required:
    Calculate, with supporting explanations, the value of goodwill arising on the acquisition of Wonderland and exchange differences arise on the retranslation of Goodwill.

  3. Hi, please could you elaborate on the double entry for recording these translations differences.

    I assumed good will adjustment would be:

    Dr : RE / Cr: GW I NCA

    How does this then link into OCI without causing an imbalance on the accounting equation?

    Or is the actual journal entry:

    Dr: OCI / Cr: GW I NCA

    But then how does this cause a reduction in group retained earnings if the journal entry is made to OCI instead of RE? Surely there can’t be 2 sets of double entry for the same transaction?

    The same for the overall translation difference, I assume the entry to OCI would be:

    Dr: OCI

    Where would the Cr entry go?

    Please could you advise so I can understand, I think I may be getting confused somewhere.

    Thank you!

  5. Hi Tuitor,
    As stated in the video, any gains or losses on translation of the overseas subsidiary are recognised in OCI. I want to cofirm if my words below are right or not.
    Only if we need to prepare the Group SPL, we will calculate the translation gain or loss through OCI.
    If we only need to prepare the Group SOFP, we don’t need to consider about the OCI arising from the translation, only provide the NCI and Group retained earnings by the allocation of the post- acquisition retained earnings, which including the translation gain or loss already. Also considering the gain or loss arising from goodwill when calculating the Group retained earnings, not separately to the OCE.

    Thank you very much!

    • As per Para. 48 of IAS 21:

      “On the disposal of a foreign operation, the cumulative amount of the exchange differences relating to that foreign operation, recognised in other comprehensive income and accumulated in the separate component of equity, shall be reclassified from equity to profit or loss (as a reclassification adjustment) when the gain or loss on disposal is recognised …”

      According to Para. 48, the exchange differences (with respect to the SFP) should be accumulated in OCE and not GRE. So regarding example 3, GRE should be $122m? And whatever the ‘exchange rate losses’ are, they should be recognised in OCI and accumulated in OCE.

      • Hello wgk, I have a questions
        In example 3: Post acq-date Reverse = 15 (this included post acq-date RE, RR and any gain or loss of translation Sub – which go into OCI/RR)
        Therefore, when we calculate ‘Group RE’, we could not use all 15, we need to find what post acq-date only RE of Sub by subtract 15 to gain or loss of translation Sub. Is it right? Can you explain detail please. Thank you

  6. Translation loss will be shared 80% of net asset and profit for the year to parent (80% x 17.6 = 14.1) and 20% to NCI (20% x 17.6 = 3.5), whereas 100% of 11m goodwill to parent when attributing total comprehensive income; won’t it? Thank you.

  9. Hi, in the previous video we deducted the exchange loss on goodwill($11m) from the group retained earnings, and we have now deducted it from OCI, aren’t we double counting?

    thank u

  10. Hi there, my question is when we were translating net assets we calculated post acq profit as balancing figure and we got 15. However for p&l the post acq profit is different as it is converted using average rate. Can you please help me understand the difference and if it is different then how are we balancing debits and credits.

    Thank you

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