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Dear tutor
Q1 of June 2009 paper?
in the “Clarity” valuation, the examer’s answer working 4 showing that “no impairment loss is recognised in the year ended 31 May 2008 as there is no loss in the reporting currency ($)”
From my understanding, on 31 May 2008, the fair value of the financial instrument in million dinars decrease from 11 to 10, so a impairment loss of 1 million dinars should be recognised in profit or loss of the year. Therefore, the fair value change of $1.5m encompass two parts:Average rate for year 2007 = (4.5+5.1)/2=4.8
Impairment loss= (11 million dinars – 10 million dinars)/4.8= $0.2m
Exchange gain= $51m- ($49.5m- $0.2m)=$1.7mDr. Profit or loss of the year $0.2m
Dr. Financial instrument $0.2mDr. Financial instrument $ 1.7m
Cr. Other conponent of equity $ 1.7mOn 31 May 2009, the fair value of the financial instrument decreased from 10 million dinars to 7 million dinars, the impairment loss is 3 million dinars. The calculation should be:
Average rate for year 2008 = (5.1+4.8) /2=4.95
Impairment loss= (10 million dinars – 7 million dinars)/4.95= $0.6m
Exchange loss=($51m- $0.6m)- $33.6m=$16.8m.Dr. Profit or loss of the year $0.6m
Dr. Financial instrument $0.6mDr. Other conponent of equity $ 16.8 m
Cr. Financial instrument $ 16.8mTherefore, in consolidated SOFP the financial instrument should = $33.6m;
Retained earning should be reduced = $0.2m +$0.6m=$0.8m
Other component of equity should be reduced = $16.8m-$1.7m= $15.1mIs my working correct?
fani
u just simply multiply fair value with the dollar rate on 3 given dates like
11*4.5= 49.5 , 10*51 = 51 , 7 *4.8 = 33.6
|
Revalue 1.5
|—- Imp 17.4—|
( Previous year )( This year )so u can see at the beginning of year we had 1.5 in OCE
Now
value at beginning of the year is 51 but at the end 7*4.8 = 33.6
now u can see impairment of 51-33.6 = 17.4
now u need to think which amount should go to I/S as impairmentlook u have 1.5 in OCE so realize that 1.5 …. now u have ( 17.4 – 1.5 ) = 15.9
15.9 is the impairment which will be charged in C.R.Etried to solve ur prob in easiest way hope it helps u
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muneebnawaz90 I think Fani is right
there is no any distinction between fair value movement and exchange differences, as you see the fair value in dinars has decreased for the first year for 1 m dinar, just suppose the exchange rate has remain constant, does not it mean that 1m* 4,5 will be recorded as impairment. we just cover it as a result of favourable changes in exchange rates, which is wrong i suppose
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