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Hello Kim,
1. The answer for “Borzoi Co – foreign currency retranslation” mentions that “The fact that the currency has been volatile over the last six months and could remain volatile for the rest of the year means that the retranslation of income and expenses is problematical.”
IAS 21 requires that assets and liabilities are translated at the closing exchange rate at the reporting date, while income and expenses are translated at the exchange rates at the dates of the transactions.
My question is why we need to retranslate the income and expense? I think to translate income and expense once at the spot date at the transation date would be sufficient based on IAS 21. Please correct me if I am wrong.
2. Regarding Transfer of software, the answer did not mention that the risk in relation to the unrealised profit as a result of the transfer has not been eliminated on consolidation, overstating the intangible assets and profit.
Can I mention this point in my answer?
Thank you.
Regards,
Marthew1. I think it is just the translation of income and expenses that is problematical because, in practice, translating every transaction at an actual rate is not practical and an average rate for the period would be used. However, IAS 21 says that an average rate is inappropriate if exchange rates fluctuate significantly.
2. Yes I think this is relevant as an aspect of the last para to this part of the solution (that the intercompany transaction should be eliminated).
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