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Hi,
In June 2008 exam, there is an adjustment in as follow, with SoFP being bpreapred for 30/6/2008
“Zian is located in a foreign country and imports its raw materials at a price which is normally denominated in dollars. The product is sold locally at selling prices denominated in dinars, and determined by local competition. All selling and operating expenses are incurred locally and paid in dinars. Distribution of profits is determined by the parent company, Ribby. Zian has financed part of its operations through a $4 million loan from Hall which was raised on 1 June 2007. This is included in the financial assets of Hall and the non-current liabilities of Zian”
Dinars to $ at 1/6/2007 = 10
Dinars to $ at 1/6/2007 = 12Can I assume that the loan in Zian’s books at 30/6/2008 has already been translated to 48m dinars already? Or it is only carried at 40m dinars as at inception of loan?
In the answer, the net asset of Zian was adjusted down by 8m dinars to account for the loss. I dont really understand why. I think the $4m loan is Monetary Item that need to translated at every year end?
Thanks
Hi,
You’re correct that it needs translating as a monetary item but you need to be careful that when translated at the year end we need to increase the loan liability from 40 million dinars to 48 million dinars. An increase in the liability therefore results in the 8 million dinar loss through profit or loss.
You cannot assume it has already been done as there would then be nothing to test.
Thanks
Hi,
Thanks for your reply. Just a small question. Usually in consolidation questions, unless the question states that the entries were not booked, I normally assume that the subsidiaries’ individual accounts are correct. That’s why in this case I thought that the loss was already booked in Zian’s books and I just need to eliminate the intra-balance. Do you agree with my assumption in general and this case is kind of a strange case?
Another question is that if in this case the item was not a monetary item, but was a non-monetary, there will be no exchange loss at all, right? Only need to eliminate any intra-balance regarding the item
Thanks.
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