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Dear Tutor, I am very confused this adjustment in this question: https://studymaterials.accaglobal.com/app/strategic-business-reporting-int-sbr-int-for-exams-from-september-2023-june-2024#quiz/review/categories/1100323/13646333
In its question said that: original accountant included exchange difference together with all of Zian Co’s profits since acquisition within draft consolidated retained earnings.
However, its answer is that they withdraw exchange difference from Foriegn exchange reserve into Retained Earnings.
It is very confused to me. would you please help me out!
Many thanks
This question is from acca study hub. practice question 1 Ribby Co
Many thanks
Exchange differences should be kept in a special reserve (not in retained earnings)
On sale of the subsidiary the exchange differences are moved back into retained earnings as they are said to be ‘realised’.
This adjustment is very much a ‘prize winner point’, so don’t spend too long on it.
But make sure that you can calculate the exchange difference on goodwill – a much easier mark.
Does that help?
$000 Retranslate Zian’s FS (W1) Retranslate goodwill FS (W2)
Assets
Non-current assets
Property,plant and equipment 384,600
Financial Assets 22,300
Goodwill 3,300 -550
Current Assets 29,000Total Assets 439,200
Equity
Share capital 60,000
Other component of equity 30,000
Foriegn exchange reserve -5,515 -550
Retained earnings 119,400 9,192
209,400Non controlling interest 19,800 -3,677
Total equity 229,200
Liabilities
Non-Current liabilities 94,000
Current liabilities 116,000Total liabilities 210,000
Total equities and liabilities 439,200the above is its answer and said that:
9,191 to reverse out of retained earnings(CR)
5,515 to foriegn exchange reserve(DR)
5,515 to foriegn exchange reserve(DR)very confused about, is it a specific rule behind it?
Many thanks
Originally, its draft consolidated statement didn’t have Foriegn exchange reserve, because they put all of profit and exchange different into retained earning at that time.
do you think is it possible this answer is wrong!It said that : to reverse out of retained earnings, but it’s double entry logo is “CR”
9,191 to reverse out of retained earnings(CR)
5,515 to foriegn exchange reserve(DR)
3,677 to NCI(DR)sorry it is my typing mistake, its original anwer is like above.
My interpretation:
– an exchange loss of 9091 had been DEBITED to RE
– this is incorrect as it should have been debited to a separate reserve and NCI
– the correcting journal would be CREDIT RE and DEBIT FX reserve and NCIThanks, its original answer is right, I mistakely treated the Fx loss as Fx gain. thanks again!
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